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QUESTIONS ON THE PRINCIPLES 
OF ECONOMICS 



f^>^' 



THE MACMILLAN COMPANY 

NEW YORK • BOSTON • CHICAGO ■ DALLAS 
ATLANTA • SAN FRANCISCO 

MACMILLAN & CO.. Limited 

LONDON • BOMBAY • CALCUTTA 
MELBOURNE 

THE MACMILLAN CO. OF CANADA, Ltd. 

TOEONTO 



QUESTIONS ON THE PRINCIPLES 
OF ECONOMICS 

BY 
EDMUND EZRA DAY, Ph.D. 

PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY 
AND 

JOSEPH STANCLIFFE DAVIS, Ph.D. 

DIRECTOR, FOOD RESEARCH INSTITUTE 
STANFORD UNIVERSITY 



REVISED EDITION 



il5eto gorli 

THE MACMILLAN COMPANY 

1922 

All rights reserved 



PRINTED IN THE UNITED STATES OF AMERICA 



M 



r^X^ 



31 V<^ 



'A' 



Copyright, 1915 and 1922, 
By the MACMILLAN COMPANY 



Set up and Electrotyped. Published September, 1915. 



REVISED EDITION 
Set up and Electrotyped. Published October, 1922. 



Press of 
J. J. Little & Ives Company 
New York, U. S. A. 



OCT -4 '22 

(S)CI.A68f>077 



PREFACE TO SECOND EDITION 

The appearance of a new edition of Professor Taussig's 

"Principles of Economics" (Third Edition, 192 1), with which 

this little question book has been extensively used, has led the 

authors to make a corresponding revision of the questions. In 

this revision they have had the invaluable aid of Mr. R. L. 

Masson. Acknowledgment is also due to H. G. Hayes' 

"Problems and Exercises" (H) for a few questions quoted or 

adapted. 

E. E. D. 

J. S. D. 

Cambridge, Mass., 
June 10, 1922. 



PREFACE TO FIRST EDITION 

Mastery of the principles of Economics demands more than 
a reading of text-books and supplementary selections. It calls 
for frequent and thoughtful consideration of problems, con- 
crete and abstract, by which conceptions may be clarified, 
truths driven home, fallacies laid bare, and powers of analysis 
and discrimination developed. To furnish material for such 
discipline is the general design of this collection of questions. 

More specifically, such a collection in the hands of students 
in an introductory course in Economics may serve four main 
purposes : 

(i) Most obviously, the questions may stimulate the stu- 
dent's interest. Assigned in conjunction with portions of a 
text-book or collateral reading, they may tempt the student to 
relate for himself the abstract analysis to concrete conditions 
and events which he may observe, and find for a general argu- 
ment its everyday, near-at-hand applications. 

(2) Secondly, such questions may aid in giving the beginner 
his points of compass in a first journey through a somewhat 
intricate subject. Thus he may more speedily acquire a sense 
of direction and proportion, a true perspective, which is easily 
missed in making the usual swift reconnaisance of the field of 
Economics. 

(3) In the third place, the questions may serve to prepare 
the way for more pointed and effective classroom discussion. 
By making the student's thinking less extemporaneous and 
haphazard, they may strengthen and deepen the analysis of 
more difficult points, and furnish a helpful plan for ordering 
and mastering the significant details of the simpler material. 



Vlll PREFACE TO FIRST EDITION 

The authors believe this can be done without emasculating the 
test of oral or written quizzes, and without weakening the 
student by furnishing unnecessary props. 

(4) Finally, by suggesting possible differences of opinion, 
the problems may arouse a questioning, combative mental at- 
titude which conduces to independent thinking — an exercise 
whose satisfactions few sophomores appreciate; and by im- 
plying the shallowness or fallaciousness of certain commonly 
accepted catchwords or doctrines, they may promote an in- 
valuable alertness of mind and encourage the student to lay 
a few bricks in a new intellectual structure of his own. 

The book is arranged particularly for use with Professor 
Taussig's "Principles of Economics" (revised edition, 191 5). 
Accordingly, the questions cover the general range of subject 
matter and are arranged and numbered in the sequence of that 
work, — e. g., question 27.2 is the second question on Chapter 
27. Similar collections already published contain a vast amount 
of excellent problem material, but this is in a form difficult for 
the ordinary student to use in connection with a text-book built 
on a different plan. To be most effective as a teaching device 
and as an aid to study, such a collection needs to be thoroughly 
accessible and easy to use. It is therefore expected that this 
book will be serviceable chiefly in the hands of students who 
are using Taussig's "Principles" as a text-book, and who will 
go through the questions chapter by chapter as they read the 
text. At the same time, the use of the questions with other 
text -books is not precluded, inasmuch as they are grouped under 
more or less traditional topics and are riot commonly couched 
in phraseology peculiar to Taussig. Furthermore, many of the 
questions are far from being simple and elementary, and may 
profitably be considered by more advanced students, especially 
by those who have not had the advantage of a thorough in- 
troductory course. Indeed, in using the book in elementary 
courses, instructors will ordinarily find it advisable to "star" 



PREFACE TO FIRST EDITION IX 

for omission certain questions on nearly every chapter, in 
order to limit the student's burden to "what the traffic will 
bear." The authors have refrained from making this selection 
in advance, believing that it may best be done with special 
reference to local needs. 

A few of the questions here presented are frankly borrowed 
from previously published collections; and in such cases, ex- 
cept where the appropriation has been unconscious or acci- 
dental, credit has been given by appropriate initials. Ac- 
knowledgments are here made for adaptations or quotations 
of questions from F. A. Fetter's "Principles of Economics" 
(Fet.); I. Fisher's "Suggested Problems for Teachers" (F.); 
S. Newcomb's "Principles of Political Economy" (N.); 
W. G. Sumner's "Problems of Political Economy" (S.); F. M. 
Taylor's "Principles of Economics" (T.); and the University, 
of Chicago "Outlines of Economics" (0.). More of the ques- 
tions have been drawn from a stock accumulated through sev- 
eral years in the hands of the instructing staff of the intro- 
ductory course in Economics at Harvard University. Most 
of the question material, however, has been drafted by the 
authors during the past year with the specific purpose of the 
present book in mind. Even for this part no thoroughgoing 
originality can be claimed, so pervasive is the influence of the 
thoughts and phrases of others. But it is hoped that sufficient 
freshness of form and substance may be observable to justify 
the pretension of authorship. 

EDMUND E. DAY, 
JOSEPH S. DAVIS. 
Cambridge, Mass. 
August 7, 1915. 



CONTENTS 

BCX)K I 
THE ORGANIZATION OF PRODUCTION 

CHAPTER PAGE 

I. Wealth and Labor i 

II. Of Labor in Production 3 

III. The Division of Labor and the Development of 

Modern Industry 5 

IV. Large-Scale Production 6 

V. Capital 8 

VI. The Corporate Organization of Industry ... 10 

VII. Some Causes Affecting Productiveness .... 12 

BOOK n 
VALUE AND EXCHANGE 

VIII. Introductory: Exchange, Value, Price .... 15 

IX. Value and Utility 17 

X. Market Value, Demand and Supply 19 

XI. Speculation 23 

XII. Value under Constant Cost 25 

XIII. Value and Varying Costs. Diminishing Returns . 27 

Xrv. Value and Increasing Returns 29 

XV. Monopoly Value 31 

XVI. Joint Cost and Joint Demand 33 

BOOK III 
MONEY AND THE MECHANISM OF EXCHANGE 

XVII. The Precious Metals. Coinage 35 

XVIII. The Quantity of Money and Prices 37 

xi 



Xll CONTENTS 

CHAPTER PAGE 

XIX. The Cost of Specie in Relation to Its Value , . 39 

XX. Bimetallism 41 

XXI. Bimetallism, continued. The Displacement of 

Silver 43 

XXII. Changes in Prices 44 

XXIII. Government Paper Money 46 

XXIV. Banking and the Medium of Exchange .... 48 
XXV. Banking Operations 50 

XXVI. Centralized Banking Systems . 52 

XXVII. The Banking System of the United States ... 53 

XXVIII. Crises 55 

XXIX. Financial Panics 56 

XXX. The Theory of Prices Once More 58 

XXXI. Proposals for Monetary Reform 60 

BOOK IV 
INTERNATIONAL TRADE 

XXXII. The Foreign Exchanges 6x 

XXXIII. The Balance of International Payments ... 63 

XXXIV. The Theory of International Trade. Why Par- 

ticular Goods are Exported or Imported ... 65 

XXXV. The Theory of International Trade, continued. 

Wherein the Gain Consists 67 

XXXVI. Protection and Free Trade. The Case for Free 

Trade 69 

XXXVII. Protection and Free Trade, continued. Some Argu- 
ments FOR Protection 72 

BOOK V 

THE DISTRIBUTION OF WEALTH 

XXXVIII. Interest on Capital Used in Production. The Con- 
ditions OF Demand 73 

XXXIX. Interest, continued. The Equiubrium of Demand 

AND Supply 75 

XL. Interest, Further Considered 77 



CONTENTS Xlll 

CHAPTER PAGE 

XLI. Overproduction and Overinvestment 79 

XLII. Rent, Agriculture, Land Tenure 80 

XLIII. Urban Site Rent 82 

XLIV. Rent, concluded 84 

XLV. Monopoly Gains 86 

XLVI. The Nature and Definition of Capital .... 87 

XL VII. Differences of Wages. Social Stratification , . 88 

XLVIII. Wages and Value 90 

XLIX. Business Profits 91 

L. Business Profits, continued 93 

LI. Great Fortunes 94 

LII. The General Level of Wages 95 

LIII. Popxn-ATiON and the Supply of Labor 97 

LIV. Population, continued 98 

LV. Inequality and Its Causes. Inheritance ... 99 

BOOK VI 
PROBLEMS OF LABOR 

LVI. The Wages System. Strikes and the Right to 

Strike loi 

LVII. Labor Unions 102 

LVIII. Labor Legislation and Labor Hours 104 

LIX. Some Agencies for Industrial Peace 106 

LX. Workmen's Insurance. Poor Laws 107 

LXI. Cooperation 109 

BOOK VII 
PROBLEMS OF ECONOMIC ORGANIZATION 

LXII. Railways iii 

LXIII. Railway Problems, continued 113 

LXIV. Public Ownership and Public Control .... 114 

LXV. Combinations and Trusts 116 

LXVI. Socialism 118 

LXVII. Socialism, continued 120 



XIV CONTENTS 

BOOK VIII 
TAXATION 

CHAPTER PAGE 

LXVIII. Principles Underlying Taxation 121 

LXIX. Income and Inheritance Taxes 122 

LXX. Taxes on Land and Buildings 123 

LXXI. Taxes on Commodities 124 



QUESTIONS ON THE PRINCIPLES 
OF ECONOMICS 

BOOK I 
THE ORGANIZATION OF PRODUCTION 

CHAPTER I 
WEALTH AND LABOR 

1. 1, Which of the following are economic goods: A Vic- 
tor record; the moon; opium; a sunken ship; an athletic 
field; New York harbor; McCormack's voice; a five-dollar gold 
piece; a five-dollar bill; a mortgage; the registered trade name 
"Uneeda"; electricity; a primeval forest; a band concert; a 
glass eye; eyesight; weeds; land at the South Pole; friendship; 
labor? 

Define ''economic goods." 

1. 2. Which of the following are public goods: the Hudson 
River; the Panama Canal; Yellowstone Park; a city water 
system; lakes stocked by the government with fish; a harbor 
improved at government expense; a warship; the Weather 
Bureau service; a fire department; a university museum? 

Define "public goods." 

1. 3. May a thing be wealth (c) to one person and not 
to another? {b) at one place and not at another? (c) at one 
time and not at another? Illustrate. 



2 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

1. 4, "Nothing can be wealth unless the total supply is 
so narrowly limited that every part of it is necessary to satisfy 
existing wants." 

Can you think of any exceptions? How, if at all, should 
you restate the point? 

1. 5. Did the Emancipation Proclamation diminish the 
amount of wealth in the Southern States? 

1. 6. "Labor employed in the productive work of in- 
dustry is usually excluded from the category of national 
'wealth.' . . . But there is no sufficient reason for its ex- 
clusion. Any increase of the efficiency of labor of a nation 
is evidently as much an increase of its total vendible resources 
as an increase in its instrumental capital would be," 

Do you agree? 

1. 7. Most goods after being sold to consumers can be 
resold only at a lower price; they are "second hand." Does 
the fall in selling value indicate a decline in the wealth of the 
community? 

1. 8. "The more things in the nature of wealth a com- 
munity has, the less prosperous it is." Do you agree? Why 
or why not? 

1. 9. Which of the following are labor: exercise to reduce 
one's weight; golf-playing; coaching a football team; serving 
as a bank director; serving on an unpaid government com- 
mission; painting for love of the art; military service? 

Define "labor." 

1. 10. Is the irksomeness of labor inevitable? How, if at 
all, may it be minimized? 



CHAPTER II 
OF LABOR IN PRODUCTION 

2. 1. "Insurance is not production." Do you agree? If 
not, what product does an insurance company produce? a 
railroad company? 

2. 2. Can there be production without the application of 
labor? Cite instances, if possible. Define "production." 

2. 3. To what extent, if at all, is advertising productive? 

2. 4. Are the following productive laborers: a contractor 
razing a building; a ticket speculator; a policeman on duty 
at an amateur baseball game; a grocer; a commission mer- 
chant; a bar-tender; a professor of fine arts; an examina- 
tion proctor; a bond salesman; a publisher of sensational 
falsehoods; an agitator for Socialism; the admiral of a battle- 
ship fleet; the warden of a prison; a lawyer who successfully 
defends a guilty person; a smuggler of diamonds; a smuggler 
of Chinese coohes; a politician campaigning for high office? 

Define "productive labor." 

2. 5. When a millionaire purchases an up-to-date factory 
building which stands opposite his house and razes it in order 
to improve his view, is his action productive? 

2. 6. "Some years ago a paper manufacturer near New 
Haven was offered a round sum if he would close his mill. 
This he did, to the benefit of both himself and his former 
rivals." Was his action productive? 

2. 7. "Economic productivity is not a matter of piety or 
merit or deserving, but only of commanding a price. . . . 
The test of economic productivity in a competitive society is 
the fact of present gain, irrespective of any ethical criteria." 

3 



4 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

Do you agree? 

2. 8. Is all productive labor honorable? legal? Is all 
unproductive labor dishonorable? illegal? Illustrate and give 
reasoning. 



CHAPTER III 

THE DIVISION OF LABOR AND THE DEVELOPMENT 
OF MODERN INDUSTRY 

3. 1. What are the various forms of the division of labor? 
What are the advantages of each? 

What disadvantages have resulted from the division of 
labor? How, if at all, may these be reduced or eliminated? 

3. 2. What was the Industrial Revolution? When did it 
begin? Is it a thing of the past? How has it affected the 
division of labor? 

3. 3. Would the Industrial Revolution have taken place 
if transportation facilities had remained unimproved? In 
what way were improvements in transportation stimulated by 
developments in the industrial arts? 

3. 4. Division of labor has been described as "unconscious 
cooperation" and as "specialization." Are these descriptions 
accurate? Which seems to you preferable? 

3. 5. Should you expect a high development of the divi- 
sion of labor in (a) truck farming? (b) the manufacture of 
jewelry? (c) automobile repairing? (d) carpentering? (e) 
interior decorating ? In each case give reasons. 

3. 6. "The division of labor is limited by the extent of 
the market." Explain with reference both to the geographical 
division of labor and to the division of labor among individuals. 

What other factors may limit the division of labor in any 
industry? 

3. 7. What sorts of gain result from the geographical divi- 
sion of labor? Are there analogous gains in the division of 
labor among individuals? In what respects are these analogous 
to the gains from the division of labor among individuals? 

5 



CHAPTER IV 
LARGE-SCALE PRODUCTION 

4. 1. On what different bases may the scale of production 
be measured? 

4. 2. Distinguish clearly (a) between an industry and a 
plant; (b) between a plant and a business organization. Which 
is the unit in considering (a) the scale of production? (b) 
combination? 

4, 3. Which advantages of, and which limitations upon 
large-scale production appear most prominently in (a) iron 
and steel manufacture? (b) retail trading? (c) dairy farming? 
(d) job printing? (e) watch manufacturing? 

4. 4. How do you account for the appearance of widely 
different scales of production (a) in different industries? 
(b) within a single industry? Give examples, 

4. 5. What are the limitations upon large-scale production 
in agriculture? in manufacturing? 

Should you expect the scale of manufacture to be affected 
by a large increase of graduates from schools of business 
administration? Should you expect the scale of agriculture to 
be affected by a large increase of graduates from agricultural 
colleges? 

4. 6. Does large-scale production entail disadvantages for 
(a) employers? (b) laborers? (c) consumers? (d) society at 
large? 

4. 7. What are the two forms of large-scale management? 
Illustrate each. What forces tend permanently to establish 
each form? 

6 



THE ORGANIZATION OF PRODUCTION J 

4. 8. Give three possible advantages of combination as 
distinct from large-scale production. Does large-scale man- 
agement necessarily involve large-scale production? 

4. 9. Do both horizontal and vertical combinations appear 
in the restaurant business in this vicinity? What forces pro- 
mote combination in this business? Why is competition able 
to persist? 

4. 10. What motives lead most strongly to horizontal 
combination? to vertical combination? 

To which form of combination is the tendency the stronger? 
Why? 



CHAPTER V 
CAPITAL 

5, 1. Are the following capital: a dog; a wheat field; 
flour; a workman's lunch; a jail; a fountain pen; a rail- 
road bond; a railroad ticket; an opera singer's talent; coal 
in a locomotive tender; a five-dollar gold piece; a street rail- 
way franchise; business goodwill; a college dormitory? 

Define "capital." 

5. 2. "The difference between producer's and consumer's 
goods is at bottom only a difference of degree." Explain. 
What is the essential difference between them? What two- 
fold relation does capital bear to consumer's wealth? 

5. 3. "Is it your opinion that the knowledge and skill in 
production which a man may acquire by long practice and 
study should be regarded as part of his capital? Compare 
the cases of two men, one of whom has saved his wages to be 
invested in bonds, while the other has employed his in educat- 
ing himself so as to command higher wages." (N.) 

5. 4. Draw up a list of the important forms which capital 
takes. 

5. 5. What is meant by "saving"? Is capital ever formed 
without saving? Does all saving result in the formation of 
capital? Does all investment? If possible, give examples. 

5. 6. Of what concretely do uninvested, of what do 
invested, savings consist? 

5. 7. "It is . . . the genesis of new capital that requires 
abstinence. The maintenance of it, the mere renewal of the 
wasting tissue of it, does not. . , . The keeping up of the 



THE ORGANIZATION OF PRODUCTION 9 

series of capital goods is, in a sense, automatic. The mill, the 
ships, etc., virtually replace themselves as they are worn out." 

Do you agree? 

5. 8. ''Through long periods of saving the capital in the 
community has been so greatly increased that there is no longer 
any need for individual saving. . . . Hence, the hard-fisted 
man is not in demand, but rather the man who will consume 
and enjoy. It is no longer necessary that a man abstain in 
order to save. The modem community as a cooperative group 
is producing enough for all." 

Do you agree? 

5. 9. To what extent and in what manner do the follow- 
ing contribute to the formation of capital: a miser; a postal 
savings bank; a life insurance company; government borrow- 
ing; a manual training school teacher; a college professor? 

5. 10. What obstacles hindered the creation of capital in 
primitive times? What obstacles today impede the growth of 
capital in Mexico? in the United States? 

5. 11. "Capital is produced." "Capital is saved." Can 
these two statements be harmonized? 

5. 12. Why should wages paid to subway laborers be 
called "advances"? Are all wages "advances" in the same 
sense? 

5. 13. Capital has been variously characterized by econo- 
mists as (a) "inchoate wealth"; (b) "congealed labor"; (c) 
"intermediate goods"; (d) "produced means of production"; 
(e) "an accumulated surplus"; (/) "future goods." In what 
sense is each an apt description? Which is preferable? 

5. 14. By what process is capital created? maintained? 
depleted? 



CHAPTER VI 
THE CORPORATE ORGANIZATION OF INDUSTRY 

6. 1. Should you expect corporations or partnerships to 
be the more common in (a) retailing bonds? (b) truck farm- 
ing? (c) gold mining? (d) the manufacture of explosives? 
(e) automobile repairing? (/) preparatory school education? 
(g) ship building? (h) aerial navigation? (/) insurance? 

6. 2, A corporation, formed with capital stock of $10,000, 
is forced to dissolve. Its outstanding debts are $15,000. How 
much will be lost (a) by the creditors, (6) by the stockholders, 
if the assets yield $10,000? $15,000? $20,000? $30,000? 

6. 3. Enumerate the distinctive characteristics of the cor- 
poration. Which seem to you most important and why? 

6. 4. Do you see any causal connection between the great 
increase of corporations and the Industrial Revolution in its 
later stages? 

6. 5. In what respects is the wide extension of the cor- 
porate organization of industry advantageous, in what respects 
disadvantageous, for (a) the business man? (b) the investor? 
(c) the community at large? 

6. 6. Should you favor a tax, at the rate of 1 per cent of 
the market value, on all transfers of corporation securities? 

6. 7. Who are the financial middlemen of this vicinity? 
of New York City? What part do they play (a) in the forma- 
tion of capital? (6) in the management of corporations? 

6. 8. How has the corporate organization of industry 
made (a) savings more "liquid"? (b) "financial middlemen" 
more powerful? (c) the "leisure class" more permanent? 

10 



THE ORGANIZATION OF PRODUCTION II 

6. 9. What are the economic consequences of limitation 
of liability? 

6. 10. What are the advantages and disadvantages of the 
transferability of corporate shares? 



CHAPTER VII 
SOME CAUSES AFFECTING PRODUCTIVENESS 

7. 1. "In the building of a new town in Maine it was 
found to be economical to spend considerable sums of money 
for supplying food for the men at less than cost, rather than 
to have them eat the food provided by the local boarding- 
houses." 

Explain. 

7. 2. Under what conditions would an increase of wages 
cause a prompt increase in the efficiency of the wage earners? 
Assuming an increase of efficiency possible by such means, 
should you expect employers to raise the wages? 

7. 3. "The curse of the poor is their poverty." What 
are the economic grounds for this statement? 

7. 4. What should you consider the "necessaries for effi- 
ciency" for a pick-and-shovel worker? a bookkeeper? a motor- 
man? an artist? a foundry hand? the president of a large rail- 
road company? 

7. 5. Is it desirable that wages should always be (a) suf- 
ficient to provide the "necessaries for efficiency"? (b) no more 
than sufficient? 

7. 6. In what way is the productiveness of labor affected 
by (a) a wide diffusion of elementary education? (b) extensive 
opportunities for technical education? (c) extensive facilities 
for higher education? 

7. 7. Under what conditions, if any, might an effective 
increase in educational facilities lower wages (a) for certain 
individuals? (b) in general? 

12 



THE ORGANIZATION OF PRODUCTION 1 3 

7. 8. "The business men sit by and merely levy toll." 
Criticize. 

7. 9. How is industrial leadership affected by (a) the 
diffusion of education? (b) freedom of opportunity? (c) in- 
equality of possessions? (d) immaterial rewards? 

7. 10. Concisely describe the economically important ele- 
ments in the immaterial equipment of the United States. What 
is essential to the maintenance of this equipment? its increase? 



BOOK II 
VALUE AND EXCHANGE 

CHAPTER VIII 
EXCHANGE, VALUE, PRICE 

8. 1. "Internal commerce does not increase the wealth 
of a nation since it only transfers goods from one person to 
another." (T.) Do you agree? 

8. 2. In what sense is the term "value" used in the fol- 
lowing statements? 

(a) "Whisky is of no permanent value to society." 

(6) "We offer the biggest values in the city." 

(c) "The book cost me two dollars, but that does not 
measure its value." 

{d) "The floods caused a tremendous destruction of 
values." 

(e) "The value of a silver dollar is really only forty 
cents." 

(/) "Prices of railway and industrial stocks may still be 
below values." 

8. 3. "Any commodity in general use will serve passably 
as a medium of exchange." Can you think of any commodi- 
ties now in general use in this community of which the state- 
ment is not true? 

What commodities other than gold and silver might serve 
satisfactorily as media of exchange? 

15 



l6 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

8. 4. How should you determine the value of an ounce of 
gold? your overcoat? a railroad terminal? a court house? a 
college stadium? a book prized for sentimental reasons? 

8. 5. A general rise in prices takes place. What does 
this indicate as to (a) the price of potatoes? (b) the value of 
money? (c) a general rise in values? 

8. 6. Suppose the following course of prices: 



Silver per ounce 

Wheat per bushel 

Relative height of prices 
in general 



1873 


189s 


1913 


1919 


$1.30 
1.32 


$0.65 
.67 


$0.61 
.95 


$1.13 
2.40 


100 


50 


72 


150 



I92I 

$0.60 
1.45 

110 



What changes, if any, would be indicated in the values of 
silver and wheat (a) from 1873 to 1895? (b) from 1895 to 
1913? (c) from 1913 to 1919? (d) from 1919 to 1921? 



CHAPTER IX 
VALUE AND UTILITY 

9. 1. Can you think of anything possessing value but not 
utility? utility but not value? both utility and value but having 
no price? 

9, 2. If the supply of an article is increased, how is the 
value per unit ordinarily affected? Why? Does the value 
of the total stock rise or fall? Why? 

9. 3. Granted that more satisfaction is often derived from 
the second hearing of an opera than from the first, and from 
the fifth olive than from the first, are these cases exceptions 
to the tendency to diminishing utility? 

State the law of diminishing utility. 

9. 4. List some goods in respect to which the point of 
satiety tends to be reached most rapidly {a) in your own case; 
(b) in the case of society at large. 

Define "point of satiety." 

9. 5. Of what is "consumers' surplus" a surplus? Is it 
shared equally by all consumers? 

Under what circumstances should you expect a large con- 
sumers' surplus? a small? 

What difficulties are encountered in its measurement? 

9. 6. What different meanings may be attached to the 
phrase "the income of a community"? Is all "income" of 
economic significance? 

9. 7. If all men possessed equal property and equal 
income, (a) would changes in the supply of a commodity 

17 



l8 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

affect its price less or more than at present? (6) would the 
marginal utility of money be the same to all? (c) would all 
men enjoy the same consumers' surplus for each commodity? 
(d) would human happiness be greater or less? 



CHAPTER X 

MARKET VALUE. DEMAND AND SUPPLY 

10. 1. In what sense is the term "market" used in the 
following statements? 

(a) "The division of labor is limited by the extent of the 
market." 

(b) "I am going to market." 

(c) "We should build up our South American market." 

(d) "There was no market for apples." 

(e) "There is a world market for cotton." 

Define "market." Comment upon the following state- 
ment: "There can be only one price in a perfect market." 

10. 2. What two interpretations may be given the state- 
ment, "The demand for gasoline has greatly increased"? 
Which interpretation is employed in this chapter? 

Define "demand." 

10. 3. The demand for such goods as building lots, paper, 
salt, and unskilled labor is sometimes called a "composite 
demand." Why? Give other examples. 

10. 4. The demand for such goods as plows, agricultural 
land, motor trucks, and copper is sometimes called a "derived 
demand." Why? Give other examples. 

10. 5. Should you expect the demand for the following to 
be elastic or inelastic: diamonds; salt; pepper; hair-cuts; 
ink; tennis balls; playing cards; automobiles? 

Define (a) "an elastic demand"; (b) "elasticity of de- 
mand"; (c) "unit elasticity of demand." 

Construct a demand curve of a commodity for which the 
elasticity of demand is unity. 

19 



20 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

10. 6. Should you expect the demand for a commodity 
to be elastic or inelastic (a) if there are many available substi- 
tutes for it? (b) if there are many possible uses for it? (c) if 
its price places it beyond the reach of the masses? (d) if the 
desire for it is nearly satiated? (e) if the desire for exactly 
this commodity is deeply ingrained? 

10. 7. "Where government purchases are on such a scale 
as to absorb a very large proportion of the available stock or 
accruing output, the ordinary formulae of supply and demand 
are no longer applicable . . , there is no such thing as a 
determinate equilibrium price." Explain. 

10. 8. "Are supply and stock on hand the same?" (O.) 
Does the supply of a commodity include what is possessed by 
consumers? May the supply of a commodity exceed the 
entire quantity in existence? 

Define "supply." 

10. 9. "During the Great War the demand for sugar 
greatly exceeded the supply." Comment. 

10. 10. What is meant by the statement, "The law of 
demand and supply is inexorable"? 

10. 11. "During the Great War the law of demand and 
supply was superseded by the policy of government price- 
fixing." Do you agree? 

10. 12. Would doubling the supply of all commodities 
affect exchange values? (Fet.) 

10. 13. "I am yet unable to understand how it happens, 
with our export of flour stopped, that the price to local con- 
sumers is still going up." (From a speech made soon after 
the outbreak of the European war.) What explanations can 
you suggest? 

10. 14. What is meant by the following statements? 

(a) "Value is determined by marginal utility." 

(b) "Value is determined by the equilibrium of demand 
and supply." 



VALUE AND EXCHANGE 



21 



(c) ''Value is determined by marginal vendibility." 

Are the statements consistent? 

10. 15. Indicate the order in which the following demand 
schedules stand with respect to elasticity of demand. Plot 
demand curves corresponding to the schedules. 





Number of Units that would be Taken 




Of A 


Of B 


Of C 


25^ 

20 

15 

12 

10 

8 

6 

5 

4 

3 

2 

1 


100 

200 

300 

400 

450 

600 

800 

1,200 

2,000 

3,000 

5,000 

8,000 


400 

500 

600 

700 

800 

900 

1,000 

1,200 

1,250 

1,300 

1,350 

1,400 


50 

100 

200 

400 

800 

1,600 

2,500 

3,600 

5,000 

10,000 

20,000 

40,000 



10. 16. "If demand is doubled, the supply remaining the 
same, the price is doubled; and if the supply is doubled, the 
demand remaining the same, the price is reduced one-half." 
Do you agree? Illustrate by diagram. 

10. 17. Why does the demand curve usually descend 
toward the right? Does it necessarily so descend? 

What is indicated when the demand curve touches the 
vertical axis? the horizontal axis? 

What is signified by a sharply declining demand curve? 
an almost horizontal demand curve? 

How should you represent an increased demand? a doubled 
demand? 

10. 18. Construct a diagram showing the determination 
of the market value of first-edition Shakespeares. 



22 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

10. 19. In what ways is the demand for capital goods 
dependent upon (a) "the utility of the consumable goods 
they aid in making"? (b) general business conditions? 

10. 20. What forces tend to make retail prices inflexible? 
flexible? How far are retail prices determined by marginal 
vendibility? 

10. 21. What is meant by a "fair price"? 

10. 22. Under what circumstances may utility to sellers 
affect the price of an article? 

10. 23. Do market values always indicate where the 
productive powers of society can be applied to produce the 
greatest satisfaction? the maximum welfare? 



CHAPTER XI 
SPECULATION 

11. 1. What is meant by "dealing in futures"? How does 
it tend to affect (a) the price of wheat for the farmer? (b) the 
profits of the miller? (c) the price of flour to the consumer? 

11. 2. Explain "hedging." Why should a "conservative" 
flour miller hedge? 

11. 3. Should you expect the development of cold storage 
to mitigate or to aggravate fluctuations in the prices of perish- 
able foodstuffs? 

11. 4. Why should there be more speculation (a) in cot- 
ton than in wool? (b) in corn than in rice (in the United 
States)? (c) in stocks than in bonds? (d) in copper than in 
steel? 

11. 5. What conditions of demand and supply tend to 
promote, what to impede, organized speculation? 

11. 6. How does organized speculation tend to affect 
(a) the market value, (b) the normal value, of the commodities 
concerned? 

How does it affect value to the producer? value to the 
consumer? 

11. 7. What is the essence of speculation? Is stock- 
exchange speculation to be socially justified on the same 
grounds as (a) speculation in commodities? (b) speculation in 
land? 

11. 8, "The more speculators, the better for the legitimate 
dealer." Why or why not? 

11. 9. What is the essential difference between the pro- 
ductive and the unproductive speculator? Give at least two 

23 



24 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

reasons why the activity of the latter is economically undesir- 
able. Why is it not suppressed? 

11, 10. "A great point has been made of the fact that 
prices have advanced so little [in the wheat market since the 
opening of the warj. ... It is greatly to be hoped that the 
Government will not attempt to do more than modify any 
vicious and extreme fluctuations of price. Should they do so 
they may very easily produce later effects much worse than 
those they seek to avoid." 

In what ways might the prevention of an advance in price 
be objectionable? 



CHAPTER XII 
VALUE UNDER CONSTANT COST 

12. 1. What are the important elements of cost in the 
production of (a) illuminating gas? (b) raw cotton? (c) an- 
thracite coal? (d) fine watches? (e) railway transportation? 
(/) grand opera? 

Should you include in cost (a) the rent of the building and 
site occupied? (b) interest on the bonds of the producing cor- 
poration? (c) dividends on its common stock? 

12. 2. Distinguish market value and normal value. Can 
you determine the normal value by averaging market values? 
Is there a normal value for seasonal goods; perishable goods; 
domestic service; a first folio of Shakespeare? 

12. 3. Under conditions of constant cost of production 
is the cost per unit the same (a) for all producers at the same 
time? (b) for a single producer at different times? (c) for all 
parts of one producer's output? (d) for outputs of different 
sizes at a given time? 

12. 4. Should you expect to find production at constant 
cost in a business in which (a) the output is conditioned by 
fertility of soil? (b) rapid improvement in methods of produc- 
tion is taking place? 

What conditions of production are essential to constant 
cost? Cite industries in which you think these conditions are 
approximated. 

12. 5. How, if at all, would the doubling of the demand 
for a commodity produced at constant cost affect, in the long 
run, (a) its marginal vendibility? (b) the quantity exchanged? 

25 



26 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

(c) its value per unit? (d) the cost per unit? In what respects 
would the immediate effect be different? 

Illustrate by diagram. 

12. 6. Two commodities produced at constant cost require 
for their production equal amounts of the same raw material 
and equal amounts of the same grade of labor. Would their 
market values be the same? their normal values? 

12. 7. What is meant by "free competition"? Draw up 
a list of obstacles to the play of competition. 



CHAPTER XIII 

VALUE AND VARYING COSTS. DIMINISHING 
RETURNS 

13. 1. "Marginal cost determines values." Explain "mar- 
ginal cost." Under what conditions, if at all, is the statement 
true? 

When costs are different for competing producers, whose 
cost determines the normal value of the product when the 
differences in cost are (a) temporary? (b) permanent? 

13. 2. "A market price at which marginal cost and mar- 
ginal vendibility do not coincide cannot persist." Explain 
and illustrate by diagram. 

13. 3. How, if at all, would the doubling of the demand 
for a commodity produced at increasing cost affect, in the 
long run, (a) its marginal vendibility? {b) the quantity 
exchanged? (c) its value per unit? (d) the marginal cost? In 
what respects would the immediate effect be different? 

Illustrate by diagram. 

13. 4. "Agricultural land cannot yield increasing returns 
as there is a limit to its productivity. Its returns are hardly 
ever constant, as land becomes poorer with each succeeding 
crop and must be fertilized. On the other hand, factories 
usually yield increasing returns due to the invention of new 
processes." This statement involves a mistaken notion of 
increasing, constant, and diminishing returns. Point out the 
errors. 

13. 5. "The price of wheat this year (1900) is lower than 
it was in the year 1800. This surely proves that, during the 

27 



28 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

period indicated, the industry of wheat-raising was subject 
to the law of increasing rather than that of diminishing 
returns." (T.) Does it? 
13. 6. Given: 



Value of Labor and Capital 
Applied per Plot of io Acres 


Total Yield in Bushels per Plot 


$ 5 


35 


10 


80 


15 


135 


20 


200 


25 


275 


30 


300 


35 


315 


40 


320 



Compute, for each case given, the cost per bushel and yield 
("returns") per dollar of outlay. At what point does the ten- 
dency to diminishing returns appear? If the price of the 
product were $1 a bushel, how much labor and capital could 
profitably be employed on each acre? 

13. 7. Concretely, how should you expect the tendency 
to diminishing returns to show itself in (a) dairying? (b) mar- 
ket gardening? (c) forestry? (d) copper mining? (e) the manu- 
facture of locomotives? (/) office buildings? 



CHAPTER XIV 
VALUE AND INCREASING RETURNS 

14. 1. "Here cost is supposed to be uniform but not con- 
stant, — it becomes less per unit as the number of units 
increases." What conditions of cost of production are here 
described? Distinguish the terms "uniform" and "constant." 
Explain the statement and illustrate by diagram. 

14. 2. "We have a good example of diminishing costs and 
increasing returns in the case of the Edison Electric Light Co., 
which is yearly reducing the price of its incandescent bulbs." 
Do you agree? 

14. 3. "While this metal [Tungsten] is almost exclusively 
used in electric lamp filaments and the supply controlled by 
the General Electric Co., under an increased demand price 
would soon go down to a few dollars per pound." How might 
this be? 

14. 4. "Telephone officials agree that it costs more and 
not less to serve a subscriber in a large town than in a small 
one, even if the number of calls used is the same." Should 
you for this reason consider the telephone business conducted 
under conditions of diminishing returns? What is the unit 
for which cost must be calculated in this business? 

14. 5. Explain "producers' surplus." Under conditions 
of increasing returns is there a producers' surplus? Is there 
such a surplus under conditions of diminishing returns? 

Illustrate by diagram. 

14. 6. How, if at all, would the doubling of the demand 
for a commodity produced at decreasing cost affect, in the 

29 



30 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

long run, (a) its marginal vendibility? (b) the quantity 
exchanged? (c) its value per unit? (d) the cost per unit? In 
what respects would the immediate effect be different? 

Illustrate by diagram. 

14. 7. Should you class as "external" or "internal" the 
economies secured (a) by automobile manufacturers in Detroit 
from the location of an automobile-accessories plant in that 
city? (b) by a railroad system through the operation of a large 
car-repair shop? (c) by a shoe manufacturer through the 
establishment of his factory in Lynn? (d) by a large chain of 
drug stores through the control of a German chemical com- 
pany? 

14. 8. Enumerate the causes of the tendency toward 
increasing returns. 

If internal economies were attained indefinitely, what would 
be the outcome and why? What factors generally prevent 
this outcome? 



CHAPTER XV 
MONOPOLY VALUE 

15. 1. Are the following monopolists: (a) the owner of 
a copyright; (b) the owner of the best site on the lake front 
in Chicago; (c) a corporation manufacturing 80 per cent of 
the steel rails sold in a country; (d) a corporation purchasing 
80 per cent of the steel rails sold in a country; (e) the United 
States post office; (/) the sole possessor of the secret of making 
glass flowers? 

Define "monopoly." 

15. 2. Can a monopolist sell all of a given stock of goods 
for more than the identical stock would bring under competi- 
tive conditions? Why can a monopolist make more profit 
than competing producers? 

15. 3. Can a monopolist charge what he pleases for his 
product? What determines the precise point at which the 
monopoly price tends to settle? 

15. 4. Is the entire profit of a monopolist "monopoly 
profit"? What is monopoly profit? How does it differ from 
"producers' surplus"? Illustrate by diagram. 

15. 5. In what ways, if at all, is monopoly price affected 
by (c) cost of production per unit? (6) potential competition? 
(c) an elastic demand for the product? (d) the existence of 
satisfactory substitutes for the product? (e) hostile public 
opinion? 

15. 6. "The Dutch East India Company used to destroy 
part of its spice crop to enhance its profits." What conditions 
were essential to make this policy a good one for the company? 

31 



32 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

15. 7. Suppose a monopolized article is produced under 
conditions of constant cost. What price policy will the monopo- 
list adopt if the demand for the article is (c) elastic? {b) 
inelastic? 

Illustrate by diagram. 

How, if at all, will the monopolist's policy differ if he pro- 
duces under conditions of diminishing cost? Illustrate by 
diagram. 

15. 8. Given the following conditions of demand and 
supply: 



Assumed Price 


Quantity Demanded 


Expenses of 
Production 


1^ 

2 

3 

4 

5 

6 


1,000,000^ 
900,000 
800,000 
700,000 
600,000 
500,000 


1 


$10,000 
plus 


7 
8 


400,000 
300,000 




2^ per unit 


9 


200,000 






10 


100,000j 







(a) Draw up a supply schedule, (b) What price would 
be fixed under conditions of competition? (c) What price 
would yield the maximum profits to a monopolist? 

Illustrate by diagram. 

15. 9. What is "dumping"? What induces it? Is it 
advantageous to the domestic consumer? the foreign consumer? 
To what extent is it dependent upon (a) monopoly conditions? 
(b) tariff barriers? 

15. 10. What is the effect of a successful corner in wheat 
on the price of (a) wheat to outside speculators? (b) flour to 
the consumer? 



CHAPTER XVI 
JOINT COST AND JOINT DEMAND 

16. 1. In what respects do the following illustrate either 
joint supply or joint demand: general farming; book publish- 
ing; ship building; retailing groceries; university instruction; 
automobile manufacture? 

Cite four examples of joint demand not previously men- 
tioned. 

16. 2. What elements should you consider in calculating 
the cost of transporting by railway (a) a trainload of hogs? 
(b) a carload of potatoes? (c) a tub of butter? 

In what respects would the calculation of cost be simpler 
in shipments by express companies? 

16. 3. Suppose an increase in the demand for beef hides. 
In what direction and by what means would this tend to affect 
the long-run value of (a) beef hides? (b) the best cuts of 
beef? (c) the poorer cuts of beef? (d) mutton? (e) bone 
fertilizer? 

16. 4. What determines the value of (a) a group of three 
joint products? (b) the principal product of the group? (c) 
the by-products? 

How, if at all, would extensive advertising of the by- 
products affect the price of the principal product (a) if com- 
petition prevail? (6) if the production be monopolized? 

16. 5. Suppose a rapid increase in the construction of 
residential property. Explain fully the way in which condi- 
tions of supply will determine how the prices of bricks and 
lumber, and the wages of brick-layers and carpenters, will be 
affected (a) immediately; (6) ultimately. 

33 



BOOK III 
MONEY AND THE MECHANISM OF EXCHANGE 

CHAPTER XVII 
THE PRECIOUS METALS. COINAGE 

17. 1. Are the following money: an individual's promis- 
sory note; an individual's bank check; a bank loan; a govern- 
ment bond; a postal money order; postage stamps; a rail- 
road mileage book; a five-dollar bill issued by the Southern 
Confederacy; an old Roman coin; a bar of gold? 

Define "money." 

17. 2. What functions has money? To what extent are 
these well performed by (a) gold? {b) silver? (c) copper? 

17. 3. "Would it be possible to have a standard of value 
which did not serve as a medium of exchange? a medium of 
exchange which did not serve as a standard of value? Can 
you find examples in the currency of this country?" (O.) 

17. 4. "The following were . . . used by the ancient 
Chinese as . . . currency: (c) sea shells; {b) tortoise shells; 
(c) skins of beasts; {d) domestic animals; (e) pearls and 
precious stones; (/) pieces of cotton and silk cloth; {g) instru- 
ments of daily use." 

What qualities in each led to its use as money? In what 
respects was each defective? 

17. 5. Would gold serve as well as money {a) if it had no 
value apart from monetary use? (d) if it had but one-tenth of 
its present value? 

35 



36 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

Would gold have as much value if it did not serve as 
money? 

17. 6. Distinguish "free coinage" and "gratuitous coin- 
age." 

17. 7. What reasons are assignable for (a) the use of 
alloy in coining? (b) government monopoly of coinage? (c) 
milling coins? (d) exacting seigniorage? 

17. 8. How much above and how much below the mint 
price of gold may its market price be? What conditions 
might lead to this variation? What forces would prevent 
wider variation? 

17. 9. What is a dollar? Should you say "a dollar bill 
is a dollar," or "a dollar bill is worth a dollar"? 

17. 10. If half the world's stock of money were suddenly 
to disappear, how would the following be affected: (a) the 
price level; (b) the value of gold watches; (c) the amount of 
wealth; (d) general prosperity? 

How do you measure (c) the quantity of money? (b) the 
amount of wealth? 

17. 11. "What facts go to determine the amount of money 
which a country needs?" (S.) 



U-ii( 



CHAPTER XVIII 
THE QUANTITY OF MONEY AND PRICES 

18. 1. In what direction, to what extent, and for what 
reasons is the value of money affected by (a) a greatly 
increased demand for gold ornaments? (6) an extension of the 
division of labor? (c) lavish expenditure? (d) an increased 
rapidity of circulation of goods? (e) the growth of mail-order 
houses, e.g. Sears, Roebuck & Co.? (/) a decreased hoarding 
of specie? 

18. 2, In what ways should you expect economic recon- 
struction in Europe to affect the value of money? 

18. 3. If the value of money should decline 50 per cent, 
low would the value of gold jewelry be affected? How would 
its price? 

18. 4. What factors determine how much of the world's 
stock of gold is used as money? in the arts? 

18. 5. Has the demand for silver increased in recent 
years? Has the demand for gold? Has the demand for 
money? 

18. 6. How, if at all, does the djain of specie to the East 
affect the value of money in the Orient? in Europe? How do 
you explain any differences observed? 
l/^ 18. 7. Washington is reported to have said, in 1797, on 
being told of the discovery of a silver mine, that ''it would 
give him real uneasiness, should any silver or gold mines be 
discovered that would tempt considerable capital into the 
prosecution of that object, and that he heartily wished for his 
country that it might contain no mines but such as the plow 
could reach, excepting only coal and iron." 

37 



38 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

Do economic considerations justify his view? 
A ^18. 8. "If ten times the labor were given to gold mining 
that is now given, and ten times the gold were thereby got, ; 

the world would not be better off." Explain. Is gold mining 
productive labor? i 

Would your answer be different if gold were used solely \ 

for monetary purposes? | 

18. 9. "Thoreau thinks 'tis immoral to dig gold in Cali- 1 

fornia ; immoral to leave creating value, and go to augmenting 
the representative of value, and so altering and diminishing ' 

real value." (Emerson's Journal, 1854.) How far, if at all, j 

should you agree? 



CHAPTER XIX 
THE COST OF SPECIE IN RELATION TO ITS VALUE 

19. 1. In what particulars is the demand for gold essen- 
tially different from the demand for (a) raw cotton? {b) agri- 
cultural land? (c) silver? 

In what particulars are the conditions of supply for gold 
different from those for these same commodities? 

In what respects is the relation of cost to value different 
in the several cases? 

19. 2. Has gold a normal value? If not, why not? If so,^ 
what determines it? 

19. 3. What was the proportionate increase in the stock 
of the precious metals (a) between 1493 and 1660? {b) 
between 1850 and 1860? Was the monetary stock equally 
affected? What changes in the price level occurred in the two 
periods? How do you account for the slighter effects in the 
later period? 

19. 4. Gold can today be profitably extracted from ore 
which was discarded as waste in 1850. Prices today are 
approximately 25 per cent higher than in 1850. How do you 
reconcile these facts? Will a fall in the value of gold 
inevitably drive some mines out of operation? 

19. 5. By what process does the value of gold determine 
what mine shall become the marginal mine? 

19. 6. Suppose the discovery of a new process which 
reduces by 50 per cent the cost of taking gold from the ore. 
By how much and by what process will the value of gold be 
affected? the extent of gold mining? Is your answer con- 
sistent with Professor Taussig's conclusions? 

39 



40 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

19. 7. The report of the Yukon Gold Company for 1919 
says: "The adverse conditions affecting gold mining generally 
. . . still obtain, and the production from many low-grade 
mines has ceased entirely." What were these adverse condi- 
tions? (H). 



CHAPTER XX 
BIMETALLISM 

20. 1. Does the mint ratio of gold and silver remain 
stable when (a) the market ratio fluctuates? (b) the value of 
the silver in the silver dollar fluctuates? (c) the value of gold 
fluctuates? What determines the mint ratio? 

20. 2. Does the government fix the value of the gold dol- 
lar? the silver dollar? the nickel? 

In what different ways may the government influence the 
value of money? 

20, 3. A country freely coins a gold dollar containing 20 
grains of fine gold and a silver dollar containing 300 grains of 
fine silver, and coins on government account subsidiary silver 
coins containing proportionately one-tenth less of fine silver. 
What coins will circulate when the market ratio of gold and 
silver is (a) 16 to 1? (b) 15 to 1? (c) 14 to 1? (d) 13 to 1? 
In each case which metal, if either, is "overvalued"? 

20. 4. Give four historical examples of the working of 
Gresham's law. State the law. 

20. 5. "Money is a product of evolution, a result of the 
ages. The better has gradually crowded the poorer out of 
existence." Can you reconcile this statement with Gresham's 
law? 

20. 6. What principles should be followed in providing 
subsidiary coins? Would the same principles apply if all 
coins were made of the same metal? 

20. 7. Why did fractional silver coins in the United States 
tend to disappear after 1850? What measures were taken in 

41 



42 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

consequence to regulate this part of the subsidiary coinage? 
Were all of these measures necessary? Under what circum- 
stances, if any, would the difficulty of the fifties recur? 

20. 8. What difficulties with subsidiary coinage were 
experienced in European countries during and after the Great 
War? What measures were taken to meet the difficulties? 



■h 



CHAPTER XXI 
BIMETALLISM. THE DISPLACEMENT OF SILVER 

21. 1. "The very existence of the double standard tends 
to bring the relative values of gold and silver toward the ratio 
chosen." Explain, and illustrate from French experience. 

21. 2. In what respects was the bimetallist argument sup- 
ported by the experience of France? the United States? 

21, 3. When and why was free coinage of silver aban- 
doned by (a) France? (b) Germany? (c) United States? (d) 
India? 

21. 4. Is there a fixed coinage ratio for gold and silver in 
the United States? Is gold freely coined? is silver? Is gold 
full legal tender? is silver? Is the monetary standard bime- 
tallic? - - ' '• 

Define "limping standard" and distinguish it from bimetal- 
lism. 

21, 5. What is the present market value of the silver in a 
silver dollar? '^'^ 

How did the demonetization of silver affect (a) its market 
value? (b) its normal value? 

21. 6. Suppose the United States adopted the policy of 
free coinage of silver at the ratio of 16 to 1. How would this 
^i'tend to affect (a) the make-up of the circulating medium? 
(b) the general price level? (c) the market value of silver? 

21. 7. Would bimetallism be more likely to succeed (a) 
if the coinage ratio chosen were near the existing market ratio? 
(6) in a country which used much metal in its coinage? (c) if 
adopted internationally? (0.) 

21. 8. Would universal bimetallism conduce to a stable 
market ratio between gold and silver? to a stable price level? 
For what reasons does either seem desirable? 

43 



CHAPTER XXII 



CHANGES IN PRICES 

22. 1. What is the purpose of an index number? Is the 
use of index numbers restricted to the measurement of changes 
in prices? 

22. 2. Wholesale prices in the United States in 1897, 
1913, and 1919 were approximately as follows: 



Commodity 


1897 


1913 


1919 


Bacon (per lb.) 


$ .05 

.18 

3.50 

4.00 

.25 

.07 

1.85 

.20 

.80 

.42 


$ .12 

.30 

6.00 

5.05 

.62 

.13 

1.80 

.28 

.95 

.62 


$ .27 
60 


Butter (per lb.) 


Chairs (per doz.) 


13 70 


Coal (per ton) 


8 15 


Corn (per bu.) 


1 60 


Cotton (per lb.) 


33 


Hosiery (per doz. pairs) .... 

Sole leather (per lb.) 

Wheat (per bu.) 


4.35 

.52 

2 55 


Woolen dress goods (per yd.) 


1.32 



Assuming prices of 1913 as base prices, calculate index 
numbers for 1897 and 1919, using (a) the simple arithmetic 
mean; (6) the median; (c) the weighted arithmetic mean 
(supposing the relative importance of the different articles to 
be as follows: foods, 10; clothing, 4; house furnishings, 1; and 
fuel, 1). 

What are the special advantages of each of these methods? 

22. 3. When prices are rising how are the folloAving 
affected: debtors; farmers; factory operatives; manufacturers; 

44 



MONEY AND THE MECHANISM OF EXCHANGE 45 

beneficiaries of insurance policies; owners of gold mines ; bond- 
holders; stockholders; interest rates? 

22. 4. "There is reason to expect . . . that rising prices 
during the next generation will be accompanied by money 
incomes rising still more." Why? 

Who gains and who loses (a) by stationary incomes with 
falling prices? (b) by rising incomes with stationary prices? 

22, 5. "Rising prices seem to cause prosperity, falling 
prices adversity." How far, if at all, are the real consequences 
different? 

22. 6. "Most business men and most financial writers of 
the daily and weekly press are unconsciously inflationists." 
Why is this to be expected? 



CHAPTER XXIII 
GOVERNMENT PAPER MONEY 

\y' 23. 1. If inconvertible paper money is issued, what fac- 
tors affect its circulation? its value? 

23. 2. Is fiat money necessarily paper money? Is it 
necessarily inconvertible? Is all inconvertible money fiat 
money? 

23. 3. What constitutes "over-issue" in the case of fiat 
money? Cite historical instances of fiat money in which over- 
issue (a) has occurred, {b) has been avoided. 

23. 4. "The specie premium does not measure real de- 
preciation with accuracy." Explain "specie premium," "real 
depreciation," and the statement. 

23. 5. What policy should be adopted in resuming specie 
payments after an extended period of depreciated paper 
money? Would your answer be different if the period of 
depreciation had been short? if the depreciation had been 
slight? 

23. 6. What are the essential differences 'between the two 
sorts of convertible government paper money? In what re- 
spect is the use of either (a) advantageous? {b) dangerous? 

23. 7. How far, if at all, may depreciation take place with 
(fl) inconvertible paper money? {b) convertible paper money? 

23. 8. What is meant by "inflation of the currency"? 
i/ What are the evidences of inflation? Is there a difference 
between "currency inflation" and "currency expansion"? 

23. 9. Criticize the following proposal for financing the 
Muscle Shoals Power Project: 

46 



MONEY AND THE MECHANISM OF EXCHANGE 47 

"Bills are issued directly by the government [to pay for 
labor and materials]. . . . When these bills have answered the 
purpose of building and completing Muscle Shoals, they will 
be retired by the earnings of the power dam. That is, the 
people of the United States will have all they put into Muscle 
Shoals and all they can take out for centuries — with no tax and 
no increase in the national debt." If there were no tax, and 
no increase in the debt, would the project be free of cost? 

23, 10. What kinds of money circulated in the United 
States in 1800? 1840? 1860? 1870? 1880? 1895? 1918? 
Explain any changes noted. 

23. 11. What different forms of currency are now in cir- 
culation in the United States? What practices insure their 
circulation at parity? 

23. 12. Outline (giving dates for the principal events) the 
monetary history of the United States. 

23. 13. What were the effects of paper money issues by 
European countries during the Great War on (c) the issuing 
countries? (b) the gold standard countries? 

23. 14. What is the basis of the estimate that "the use of 
greenbacks increased the expense of the Civil War by nearly 
$600,000,000"? (H.) 



CHAPTER XXIV 
BANKING AND THE MEDIUM OF EXCHANGE 

24. 1. Distinguish between investment banking and com- 
mercial banking. By whom is investment banking conducted 
in the United States? Are the two necessarily conducted by 
separate institutions? 

24. 2. "A savings bank accepts deposits." "During the 
panic of 1907, deposits in safety vaults greatly increased." 
"The deposits of the First National Bank exceed $10,000,000." 
Of what should you expect the "deposits" to consist in each 
case? 

24. 3. How does a bank "issue" notes? By whom and 
why are they returned? 

24. 4. What expenses are involved in the issue of bank 
notes? How is revenue secured from such issue? 

24. 5. What is a promissory note? Describe the process 
of its discount at a commercial bank. In what different forms 
may the proceeds be taken? 

24. 6. In what two forms may a commercial bank lend its 
credit? Compare the two as to (a) security, (b) velocity of 
circulation, (c) extent of use. 

24. 7. "The leading operations of banks, when analyzed, 
can be resolved into cases of the exchange of rights against 
rights, or of rights against money." Explain the validity of 
this statement in the case of (c) deposits over the bank's coun- 
ter; (b) note issue; (c) the discount of a promissory note; 
(d) the creation of deposits. 

24. 8. Compare the following in respect to probable use 
f deposit currency: (a) the people of the United States and 

48 



K' 



MONEY AND THE MECHANISM OF EXCHANGE 49 

of Mexico; (6) a farming community and Chicago; (c) whole- 
sale and retail purchasers. 

What factors determine the relative importance of deposit 
currency in the circulating medium? 

24. 9. Briefly describe the process of clearing checks. 
By what process and to what extent does it economize the use 
of money? 

24. 10. A, B, C, D, and E are banks constituting a clear- 
ing house association. On a given day they present checks 
for clearing as follows: 



By 


Against 




A 


B 


C 


D 


E 


A 

B 

C 

D 

E 


$11,175 

20,750 

9,250 

9,325 


$15,250 

18,100 
8,475 
7,650 


$19,400 
17,900 

13,325 
9,175 


$10,325 

7,500 

14,075 

10,525 


$10,150 

9,125 

12,175 

7,100 



Find: (a) the total amounts due to and by each bank; (b) 
the balance due to or by, each bank; (c) the percentage of 
checks settled by offset. In what different ways may the 
balances be settled? 



CHAPTER XXV 
BANKING OPERATIONS 

25. 1. Arrange the following items in the form of a bank 
statement showing in parallel columns the resources and lia- 
bilities: Real Estate, $30,000; Surplus, $30,000; Deposits, 
$283,000; Loans, $300,000; Cash, $80,000; Undivided Prof- 
its, $12,000; Other Assets, $10,000; Capital Stock, $100,000; 
Bonds and Stocks, $80,000; Circulating Notes, $75,000. 
{Note. The sum of the assets will equal the sum of the lia- 
bilities to outsiders and to stockholders.) 

What items will be affected, and how, by each of the fol- 
lowing operations? {Note. Each operation will affect in equal 
degree the total assets and the total liabilities. The net change 
after each operation will be as follows: {a) +$16,700; {b) 
+ $7000; (c) — $1000; ((/)— $20,000; (e) — $62,000.) 

(a) The bank makes a new loan of $20,000 for two months 
at the discount rate of 6 per cent per annum; proceeds are 
taken one sixth in specie and the balance in a deposit account. 

{b) New deposits of $10,000 are made over the bank's 
counter,— $2000 in gold and silver, $2000 in notes of other 
banks, $1000 in notes of this bank, $3000 in checks on other 
banks, $2000 in checks drawn on this same bank. 

(c) The bank adds $2000 to its surplus and distributes a 
dividend of 2 per cent; stockholders take half of the dividend 
in cash and leave half on deposit with the bank. 

{d) Loans of $25,000 mature and are paid,— $5000 in 
specie, $5000 in notes of this bank, and the balance in checks 
drawn against deposits in this bank. 

50 



MONEY AND THE MECHANISM OF EXCHANGE 5 1 

(e) A "run" occurs against the bank. To strengthen its 
reserve, the bank sells one-half its bonds and stocks for cash 
at a sacrifice of 5 per cent. The "run" comes to an end after 
$50,000 of deposits have been withdrawn in money, and 
$10,000 in the bank's notes presented for redemption. 

Draw up a statement showing the condition of this bank 
after the series of operations has been completed. 

25. 2, What is a bank reserve? Why should it be main- 
tained? How should you measure the strength of a reserve? 
What considerations induce a bank (o) to diminish its reserve? 

(b) to increase it? By what means may a bank increase its 
reserve? 

25. 3. "It is natural to think of a bank's loans as being 
the children of its deposits. But it is at least as true to think 
of the deposits as being the children of its loans." 

In what sense is each statement accurate? 

25. 4. What is to be said for and against the combination 
of commercial and investment banking? How extensively are 
the two combined today? 

25. 5. What are demand loans? Why do they play so 
important a part in commercial banking? Why do the rates 
on demand loans fluctuate more widely than on time loans? 
Should the use of demand loans be restricted? 

25. 6. Suppose a large increase in the quantity of specie 
held by the commercial banks. How would this tend to affect 
(a) the rate of bank discount? (b) the volume of deposit cur- 
rency? (c) the value of money (as the commercial world uses 
the phrase)? (d) the value of money (as the economist uses 
the phrase)? 

25. 7. What part, if any, do commercial banks play in 
(a) the process of investment? (b) the increase of capital? 

(c) the course of industrial development? (d) leadership in 
the business world? In what respects may the influence of 
commercial banks be undesirable? 



CHAPTER XXVI 
CENTRALIZED BANKING SYSTEMS 

26. 1. For what reasons has government regulation of 
bank-note issue been necessary? What are the chief types of 
regulation? How do you account for the difference in type 
prevailing in different countries? 

26. 2. Compare the central banks of France, England, and 
Germany with respect to 

(a) organization and management; 

(b) branches; 

(c) nature and extent of government control; 

(d) monopoly of note issue; 

(e) limitation of note issue; 
(/) elasticity of note issue; 
(g) security for notes issued; 
(h) deposit business; 

(») size and composition of reserve; 

(;) operations other than deposit and issue; 

(k) relation to other banks. 

26. 3. What action is taken by the Bank of England when 
a crisis threatens? 

26. 4. Compare the parts played by the central banks of 
France, England, and Germany in the financing of the Great 
War. 



52 



CHAPTER XXVII 
THE BANKING SYSTEM OF THE UNITED STATES 

27. 1. Describe the national banking system as it stood in 
1913, with respect to (a) note issue; {b) reserve requirements. 

Wherein had the system proved satisfactory? 
i^'-"" 27. 2. What specific defects in the national banking sys- 
tem was the Federal Reserve Act of 1913 designed to remedy? 
What measures were adopted to this end? 

27. 3. What legal regulations respecting reserves against 
deposits in national banks exist at present? 

To what extent are such provisions found in other countries? 

To what extent and for what reasons are they desirable? 
unnecessary? 

27. 4. Describe the organization of a Federal Reserve 
bank. What are its chief functions? 

27. 5. Describe the process of rediscounting and explain 
its significance in the operations of the Federal Reserve system. 

27. 6. For what different types of notes is provision made 
under the Federal Reserve Act? What regulations govern the 
issue of each? What is their relative importance? What 
purposes are served by each? 

27. 7. What requirements does the Federal Reserve Act 
establish for reserves of Federal Reserve banks against (a) 
their deposits? {b) Federal Reserve notes? 

27. 8. Did the establishment of the Federal Reserve 
banks increase or decrease the legal lending power of the banks 
in the United States? 

27. 9. What is the Federal Reserve Board, and what are 
its principal powers? 

53 



54 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

27. 10. What are the outstanding characteristics of the 
present banking system of the United States? 

27, 11. Explain how the poUcies of the Federal Reserve 
Board have been related to the course of prices in the United 
States. 

27. 12. In what respects are bank notes and deposits es- 
sentially alike? different? 

27. 13. Why should special security be accorded to note 
holders? In what forms is this special security provided by 
the various governments? 

27. 14. By what different requirements may excessive 
issue of bank notes be prevented? 

27. 15. What may be said for and against the following 
measures for protecting depositors: (a) restricting the kind of 
business the bank may undertake; (b) limiting loans made to 
particular individuals; (c) frequent government inspection; 
(d) insurance of deposits; (e) legal minimum reserves against 
deposits? 



CHAPTER XXVIII 
CRISES 

28. 1, Make a chronological table of industrial crises, 
noting the geographical extent of each and the degree of 
periodicity apparent. 

28. 2. What are the phases of a typical business cycle? 
Sketch the significant features of each phase. 

28. 3. What have been assigned as fundamental causes of 
industrial crises? 

28. 4. Why should crises occur most frequently in coun- 
tries most highly developed industrially? 

Should you expect crises to occur more frequently in the 
United States in the future than in the past? to be more acute? 

28. 5, In what different ways is the course of the business 
cycle influenced by the temper of the business class? 

28. 6. Explain the parts played in the course of industrial 
crises and depressions by (a) distributing middlemen; (b) 
financial middlemen; (c) the accumulation of fresh savings; 
(d) extensive crop failures; (e) an increasing gold supply; 
(/) the failure of an important industrial corporation; (g) an 
extension of government interference with the conduct of 
business. 

28. 7. "Every period of prosperity develops within itself 
certain stresses which inevitably lead to a crisis." What is 
the nature of these stresses? 

28. 8. "The period of depression is often a healthy one." 
Wherein? Is the period of expansion often an unhealthy one? 



55 



CHAPTER XXIX 
FINANCIAL PANICS 

29. 1. Distinguish the financial panic from the industrial 
crisis. 

Can there be an industrial crisis without a financial panic? 
a financial panic without an industrial crisis? Is the crisis 
more severe if accompanied by a financial panic? 

29. 2. In time of panic is there less money than usual in 
the country? in the banks? in circulation? 

Is there an unusually large demand for money? 

29. 3. "In times of panic, the only sound policy for banks 
... is to lend freely." Why? Why is this policy difficult to 
pursue? Is such a policy desirable "when the storm is brewing"? 

29. 4. What means should be employed to prevent the 
development of an incipient panic when a single bank is beset 
by a run? Are the same means available when distrust of the 
banks becomes general? If not, why not? If so, under what 
conditions? 

29. 5. What lending policy has been generally pursued by 
banks in the United States {a) when a panic has threatened? 
{b) after a panic has been precipitated? Why? 
. y^ 29. 6. Why has an "emergency currency" been needed in 
time of panic in the United States? How has it been provided, 
for what special purpose, and with what success? 

How does the Federal Reserve system provide for such 
unusual needs for currency? 

29. 7. "Panics are bad in themselves, and bad in their 
after-effects." Why? Can a similar statement be made as 
to crises? 

56 



MONEY AND THE MECHANISM OF EXCHANGE 57 

'^ 29. 8. To what extent and by what means can financial 
panics be prevented? 

^ 29, 9. What are the major evils of the industrial crisis 
and depression? By what means may these evils be alleviated? 
What is the prospect of their entire disappearance? 



CHAPTER XXX 
THE THEORY OF PRICES ONCE MORE 

30. 1. In what forms may credit be extended? Under 
what circumstances does the use of credit dispense with the 
use of money? Under what circumstances does it not? 

30. 2. How is the volume of deposits related to (a) the 
volume of transactions? (b) the quantity of money in 
circulation? (c) the amount of reserve money held by the 
banks? 

30, 3. "The quantity of money is a matter of indiffer- 
ence." If this be so, why is it considered desirable that a 
banking system provide an elastic currency? 
[/^ 30. 4. How do the following tend to affect the quantity 
of "purchasing power in terms of money": (a) an increase of 
charge accounts; (b) money hoarding; (c) a limited issue of 
convertible government paper money; (d) an increased use 
of deposit accounts in commercial banks; (e) a change in the 
temper of the business community; (/) the establishment of a 
stock exchange clearing-house; (g) an increased output of 
gold; (/?) an increased output of silver? 

30. 5. How would a decrease in "inactive" deposit ac- 
counts influence the total purchasing power? the price level? 

30. 6. What factors determine the proportion of bank de- 
posits and notes to reserve money? 

30. 7. The per capita stock of money in 1915 in various 
countries was estimated as follows: 

58 



^/ 



MONEY AND THE MECHANISM OF EXCHANGE 59 

Argentina $123,06 

France 83.06 

United States 39.58 

Canada 38.09 

British Isles 28.38 

Germany 21.84 

Russia 11.39 

Japan 4.60 

India -63 

What, if anything, does this indicate as to (o) the per 
capita wealth? (6) the average amount of well-being? (c) the 
habits of the population? 

What factors determine the amount of money per capita? 

30. 8. In what direction and by what process do the 
following affect the general price level: (a) increases in the 
quantity of money? of goods? {h) increases in the rapidity of 
circulation of money? of goods? 
1 30. 9. By what process, 'if at all, should you expect the 
following to influence the general price level in the United 
States: (a) advertising; (6) the growth of trusts; (c) in- 
creasing demands of trade unions; {d) extravagant purchases 
of automobiles; (e) increased output from South African gold 
mines; (/) wider use of deposit accounts in France; (g) the 
direct purchase of huge war supplies by the United States 
Government? 

30. 10. What factors were primarily responsible for the 
great rise in prices in the United States, 1897-1914? 1914- 
1920? 

30. 11. During the year ending June, 1921, the United 
States gained approximately $500,000,000 in gold, yet prices 
fell markedly during the year. How, if at all, can this result 
be reconciled with the quantity theory of money? 

30. 12. Define: "money"; "currency"; "cash"; "specie." 



CHAPTER XXXI 
PROPOSALS FOR MONETARY REFORM 

31. 1. To what extent has the status of the gold standard 
been affected by the Great War? 

31. 2. What do you consider the essentials of a perfect 
monetary system? Wherein do modern currency systems fall 
short of perfection? 

31. 3. Are all classes interested in obtaining a stable price 
level? Would all classes gain by it (a) immediately? (b) 
ultimately? 

31. 4. What is the "multiple standard"? For what is it 
a standard? What may be said for and against its adoption? 
Wherein does it differ from plans for stabilizing the price level? 

31. 5. What may be said for and against the "stabilized 
dollar"? What is it that is stabilized? 

31. 6. "Everyone who uses gold as a standard for deferred 
payments becomes a speculator in gold." Do you agree? 

31. 7. "Society can as easily have a dollar that never 
varies in value as a yard-stick that never varies in length or a 
pound that is a constant standard of weight." Are the prob- 
lems in determining such standard units essentially the same? 

31. 8. "The normal effect of industrial progress is the 
cheapening of manufactured products." Does this present a 
problem in connection with the stabilization of the price level? 



60 



BOOK IV 
INTERNATIONAL TRADE 

CHAPTER XXXII 
THE FOREIGN EXCHANGES 

32. 1. What is a bill of exchange? By whom and on 
whom is it drawn, and to whom is it payable? 

Illustrate its use in the purchase of £1000 of cotton goods 
from J. B. & Co. of Manchester, England, by U. S. & Co. of 
New York City. 

32. 2. Suppose that a New York importer can get 50 gross 
of Sheffield razors delivered in New York for 44(/. each (the 
duty included), and that he can sell'them for 95^ each. What 
would be his profit on such a transaction if the.rate of exchange 
on London were $4.84? if the rate were $4.87? (T.) 

32. 3. What is meant by "par of exchange"? 

Find the par of exchange (expressed in terms of francs to 
one dollar) between New York and Paris, given the fine gold 
content of the dollar as 23.22 grains and that of the franc as 
4.48 grains. Would a rate of 5.20 indicate a premium or dis- 
count? a tendency toward gold export or import? 

32. 4. What determines how widely the rate of sterling 
exchange may fluctuate? How was the range of fluctuation 
affected by the Great War? 

32. 5. Who are the "dealers" in bills of exchange? Are 
they productive laborers? 

6i 



62 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

32. 6. How is the rate of sterling exchange settled at any 
given time? Would rates be different if there were no "dealers" 
in foreign exchange? What special factors influence the rate 
on "bankers' bills"? on "time bills"? 

32. 7. A New York company sells a large shipment of oil 
to a railroad company in India. How might payment be ef- 
fected through London? 

32. 8. "The flow of specie sets in motion forces which 
sooner or later stop the flow." What are these forces? How 
do they accomplish this result? 

How does a rise in the rate of bank discount in London 
affect the flow of gold? 

32. 9. What determines the par of exchange between 
(a) two gold standard countries? (6) a gold standard and a 
silver standard country? (c) a gold standard country and one 
upon a depreciated paper standard? (d) two countries upon 
depreciated paper standards? 

32. 10. What are "dislocated exchanges"? What are the 
causes and effects of such dislocation? 

32. 11. What relation exists between the gold premium, 
price of foreign exchange, real depreciation of paper, imports 
and exports? 

32, 12. "The nations of the world should adopt a uniform 
system of currency with a common standard. This would do 
away with all this bother about 'par of exchange,' 'gold points,' 
'rate of exchange,' etc." To what extent is this conclusion 
warranted? (O.) 



CHAPTER XXXIII 
THE BALANCE OF INTERNATIONAL PAYMENTS 

33. 1. List the kinds of transactions which give rise to 
payments (a) by persons in the United States to persons in 
England; (6) by persons in England to persons in the United 
States. 

33. 2. How is the rate of sterling exchange in New York 
affected (a) immediately, (b) in the long run, by large pur- 
chases of American securities by English investors? 

How is the American balance of trade affected? 

33. 3. How should you expect the rate of sterling ex- 
change in New York to be affected by (a) a financial panic in 
New York City? (6) a failure of the American wheat crop? 

(c) the rapid development of an American merchant marine? 

(d) a great increase in American gold output? (e) increased 
purchases of coffee from Brazil? (/) American loans to Europe 
during the Great War? 

33. 4. The establishment of a postal savings system in 
the United States is expected to bring about a diminution in 
the remittances made to foreign countries by those who have 
recently immigrated to this country. Would such a change 
be to the advantage of the United States? If so, wherein? 
If not, why not? 

33. 5. "These balance-of-trade reports show . . that we 
have had no real prosperity in this country for about six years. 
The balance of trade has been against us. As a nation we have 
been spending more than we have been earning. For three 
years in succession we have been paying off this debit accoimt 
by sending abroad an immense amount in gold bullion. If we 

63 



64 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

keep that up we will 'go broke.' We must see to it that more 
money comes in than goes out or Uncle Sam will go into the 
hands of a receiver," 

What have you to say regarding these statements and their 
implications? 

33. 6. "Hundreds of millions of dollars are taken away 
from the United States each year by tourists, by returning 
immigrants, and to pay interest and dividends on our securities 
held abroad. How can a nation, any more than an individual, 
grow rich if it keeps on paying out more money than it takes 
in?" 

Criticize. 

33. 7. Suppose the people of one country lend, through 
a long period, large sums annually to the people of another 
country. Trace the effects, immediate and ultimate, in the 
lending country, on (a) the flow of specie; (b) merchandise 
imports and exports; (c) the price of foreign exchange. 

Should you expect such a lending country to have a "favor- 
able" or an "unfavorable" balance of trade? 

33. 8. "As regards reparations there is but one possibility. 
The substance of the payments will be in goods and goods only. 
Germany can remit only by sending out merchandise. The 
extent of reparation that can be secured is limited by the 
available amount of exportable goods. Her exports must 
expand, her imports must shrink." Do you agree? Does it 
matter to whom Germany exports? 



CHAPTER XXXIV 

THE THEORY OF INTERNATIONAL TRADE. WHY 

PARTICULAR GOODS ARE EXPORTED 

OR IMPORTED 

34. 1. "A country exports the things which are low in 
price within its borders." Does the United States export 
crushed stone, fresh vegetables, hay, copper? What implica- 
tions are involved in the quoted statement? 

34. 2. What are the principal factors which lead to the 
export of (a) cotton from the United States? (b) cotton goods 
from England? (c) toys from Germany? (d) tea from China? 
(e) agricultural implements from the United States? 

34. 3. Under what circumstances, if any, can a commodity 
produced with labor paid high money wages be profitably 
exported to a country in which the same commodity is pro- 
duced with labor receiving low money wages? 
\y 34. 4. "We need not fear labor competition with Chris- 
tendom. The readjustment would involve some temporary 
hardship, but it would be only temporary. But to compete 
with the wages paid in India, China, and Japan would be im- 
possible. In some cases American wages would fall; in other 
cases American manufactories would cease. Wages at three or 
four dollars a day could not be long kept up in competition 
with wages at twenty-five, fifty, or even seventy-five cents a 
day. Oriental wages would rise a little; American wages would 
fall a great deal." 

Criticize. 

34. 5. Can a country advantageously import a commodity 

65 



66 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

in producing which its labor is more effective than labor is in 
producing that commodity in the country whence it is imported? 

34. 6. "It appears to me that all labor done directly and 
indirectly in carrying articles to the place of consumption 
which could have been produced in sufficient abundance, with 
as little labor, at the place of consumption as at the place they 
were carried from, is useless labor," — Lincoln's Complete 
Works, i., 92. 

Criticize. 

34. 7. State, explain, and indicate the significance of "the 
principle of comparative cost." 

34. 8. To what extent, if any, would international trade 
continue if labor were everywhere perfectly mobile? 

34. 9. Under what conditions may it be profitable to 
produce domestically a part, and to import a part, of a supply 
of a commodity? In what industries is such a division of tire 
field most likely to persist? 



CHAPTER XXXV 

THE THEORY OF INTERNATIONAL TRADE. 
WHEREIN THE GAIN CONSISTS 

35. 1. Do countries participating in international trade 
share equally in its gains? Does a country ever lose by par- 
ticipation in international trade? 

35. 2. How is the partition of gains from international 
trade affected by (a) the nature of the demand for the articles 
traded? (b) changes in the amount of other payments than 
those for merchandise? (c) the appearance of a new article of 
export? (d) differences in money incomes? {e) the effective- 
ness of labor in producing exported commodities? 

35. 3. "The cost of our imports is our exports." Discuss. 

35. 4. Show under what conditions the following may be 
true: "We may often, by trading with foreigners, obtain their 
commodities at a smaller expense of labor and capital than they 
cost to the foreigners themselves." (N.) 

35. 5. "International trade is virtually a mode of cheapen- 
ing production." Explain. 

35. 6. "There can be no national gain from domestic 
trade, for what one person gains another loses; it is only by 
foreign trade that a nation can gain." (H.) Do you agree? 
What is meant by "national gain"? 

35. 7. Explain the principle of "reciprocal demand." 

35. 8. Is the United States a country of peculiarly high 
money incomes? of peculiarly high prices? 

In a country of high money incomes, which commodities 

67 



68 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

will be at a relatively high price, which at a relatively low 
price? 

35. 9. How would perfect mobility of labor affect the 
character of international trade? How would it affect the 
division of gain among the countries participating? 



CHAPTER XXXVI 

PROTECTION AND FREE TRADE. THE CASE FOR 
FREE TRADE 

36. 1. "The internal commerce of the United States is 
the best possible argument for free trade." Explain. 

36. 2. "When we buy manufactured goods abroad, we 
get the goods and the foreigner gets the money. When we 
buy the manufactured goods at home, we get both the goods 
and the money." 

Criticize. 

36. 3. In what manner and through what process does 
the imposition of a protective tariff on manufactures tend to 
affect (c) truck farmers? (b) other farmers? (c) the extent of 
employment? 

36. 4. "There is no real excuse for buying printing out- 
side of Atlanta. Aside from patriotic motives of loyalty to 
Atlanta's industries, the business men of the city have a narrow 
view of the subject if they think they can gain by sending 
printing orders away. The removal of $500,000 cash each 
year from this city represents an actual loss, because there is 
no exchange of trade on the part of Eastern and Western 
printers with Atlanta's stores and factories. . . . The vital 
point is: If Atlanta business men have all their printing done 
in Atlanta 500 more workmen would be needed by local 
printing plants to turn out the work; 500 extra employees in 
the printing trades would spend their wages of $400,000 with 
Atlanta firms." 

Criticize. 

69 



yo QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

36. 5. If the United States should abandon the policy of 
protection, how would real wages be affected? money wages? 

36. 6. Is the general high level of wages in the United 
States to be considered a handicap to the domestic producer 
in his competition with foreign producers? 

36. 7. "The principle of protection is to build up our 
home industries by manufacturing our own products. This 
gives our people employment, keeps the money in the country, 
and makes this country an independent and self-reliant nation." 

Wherein, if at all, are these statements inaccurate or mis- 
leading? Wherein, if at all, correct? 

36. 8. "The great advantage of foreign trade is in furnish- 
ing a market for our surplus products which would otherwise 
go to waste." 

Criticize. 

36. 9. "If it costs 10 cents to produce a razor in Germany 
and 20 cents in the United States, it will require 100 per cent 
duty to equalize the conditions in the two countries. . . . And, 
so far as I am concerned, ... if it was necessary to equalize 
the conditions to give the American producer a fair chance for 
competition, I would vote for 300 per cent as cheerfully as I 
would for 50 per cent." 

Is this position a reasonable one? 

36. 10. "The determining cause of the general rate of 
money incomes in a country is to be found in the exporting 
industries." Explain. 

36. 11. What is to be said for and what against the policy 
of imposing duties (a) just sufficient to equalize differences in 
labor expense between the United States and foreign countries? 
(6) more than sufficient to equalize these differences? (c) less 
than sufficient? 

36. 12. For what group of laborers, if any, can it be main- 
tained that (a) protective duties tend to make their real wages 
lower? (6) protective duties tend to keep their real wages 



INTERNATIONAL TRADE 7I 

high? (c) protective duties tend to make their real wages 
higher? 

36. 13. Under what circumstances may the imposition of 
a protective duty result in raising the price of the dutiable 
article (a) by the amount of the duty? (6) by less than the 
amount of the duty? Under what circumstances, if any, may 
it leave the price undisturbed? 

36. 14. Can a customs duty be highly protective to indus- 
try and at the same time highly productive of government 
revenue? 
U^^6. 15. Is the tariff "the mother of trusts" ? 

36. 16. Does protection necessitate the imposition of cus- 
toms duties? Does free trade imply a total absence of customs 
duties? What is meant by "a tariff for revenue only"? 

36. 17. "As a nation advances to the industrial stage that 
makes it an exporter of manufactured articles, the manufac- 
turers tend to become advocates of free trade." Why? (H.) 

36. 18. In what way, if at all, would it be better to pay 
a bounty from the proceeds of taxation to domestic sugar 
producers whom we may wish to encourage than to impose a 
tariff on sugar? 
J 36. 19. Do you find the pronounced post-war trend 

{/toward high protection consistent with the demands upon 
Germany for large reparation payments? 



CHAPTER XXXVII 

PROTECTION AND FREE TRADE. SOME ARGU- 
MENTS FOR PROTECTION 

37. 1. "Protective duties, by their effects on general 
money incomes, may bring more advantageous terms of inter- 
national exchange." How? 
^y 37. 2. What is the principle of protection to young indus- 
tries? What economic conditions warrant such protection? 
What is the present importance of the principle in the United 
States? 

37. 3. What is the case for and against direct ship sub- 
sidies in the United States? 

37. 4. On what grounds has diversification of industry 
been considered politically and socially desirable? May pro- 
tective tariffs be important agencies for promoting such 
diversification? 

37. 5. What special arguments are there for and against 
a policy of protection for England today? 

37. 6. How do you explain the trend of tariff policy since 
1870? 

37. 7. What has been the effect of the protective tariff 
in the United States since the Civil War upon (c) the course 
of industry? (6) government finance? (c) the prosperity of 
the country? 

37. 8. What difficulties are involved in reducing or 
abolishing protective duties? 

37. 9. In what way does the protective tariff figure in 
American political life? In what respects is its influence ob- 
jectionable? wholesome? 

72 



BOOK V 
THE DISTRIBUTION OF WEALTH 

CHAPTER XXXVIII 

INTEREST ON CAPITAL USED IN PRODUCTION. 
THE CONDITIONS OF DEMAND 

38. 1. Contrast the interpretations given to (o) "distri- 
bution," {b) "money," (c) "capital," {d) "interest," by (i) 
business men and {2) economists. 

38. 2. What distinction has been drawn (a) between 
"capital to the individual" and "capital to the community"? 
(6) between "capital" and "capital goods"? 

38. 3. In what senses may it be said that production in 
modem communities is capitalistic? 

38. 4. How far, if at all, is the income derived from the 
following to be called interest: an apartment block; a pawn- 
broker's loan; a United States 4-per-cent bond; a Pennsyl- 
vania Railroad bond; a piano; an automobile truck? 

38. 5. Where, in the financial columns of a current news- 
paper, is the prevailing rate of interest in the economic sense 
to be found? 

38. 6. Would doubling the supply of money lower the 
rate of interest? Would it lower the rate of bank discount? 
What was the experience of leading European nations in this 
respect in the years 1917-22? 

38. 7. Might interest arise if there were no money? if 
there were no capital? 

73 



74 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

38. 8. "Production with capital has been aptly described 
... as indirect or roundabout production." Explain. 

38. 9. "The laborers as a whole produce more than they 
receive." Do you agree? If so, does the statement neces- 
sarily imply social injustice? 

38, 10. In what sense is capital productive? Are idle 
owners of capital productive? 

38. 11. How should you expect the demand for capital to 
be affected by (a) the discovery of a large supply of cheap 
fuel? (b) a rigid restriction of immigration, e.g. by a literacy 
test? (c) the Great War? 

38. 12. What is meant by "the marginal productivity of 
capital"? 

38. 13. Is there a general tendency to diminishing returns 
from successive doses of capital? 



CHAPTER XXXIX 

INTEREST. THE EQUILIBRIUM OF DEMAND AND 

SUPPLY 

39. 1. Enumerate the motives which impel saving. 

39. 2. "The distinction . . . between Capital and Not- 
Capital, does not lie in the kind of commodities, but in the 
mind of the capitalist — in his will to employ them for one 
purpose rather than another. ..." 

Do you agree? 

39. 3. Under what circumstances are present goods valued 
more highly than future goods of like kind? valued less highly? 

39. 4. What determines how much more highly the pres- 
ent goods will ordinarily be valued? Would the "premium" on 
present goods be large or small in the following cases: a miser; 
a savage; a millionaire; a spendthrift; a Mexican business 
man; a day laborer with a large family? 

39. 5. Draw up a "supply schedule" showing the amounts 
you would save at various rates of interest (a) with your 
present income; (b) with an income of $25,000 a year. Draw 
the corresponding supply curve. 

39. 6. Who are "spontaneous savers"? Who save the 
"marginal savings"? 

39. 7. "Interest is the price paid for the use of savings." 
Explain diagrammatically the determination of this price. 

39. 8. "The return on capital in a fixed form depends on 
the supply and demand for these particular forms of capital 
and not upon the supply and demand for capital in general." 
Is this inconsistent with the theory that interest depends upon 
the marginal productivity of capital? 

75 



76 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

39. 9. Illustrate by diagram: (a) "negative interest"; 
(b) "extra-marginal savings"; {c) "savers' surplus"; (d) how 
a drop in the rate of interest affects savings. 

39. 10. How much has the rate of interest fluctuated since 
the Industrial Revolution? Why has it not fluctuated more? 
What is the probable future course of the rate of interest? 



CHAPTER XL 
INTEREST FURTHER CONSIDERED 

40. 1. What are the sources of the demand for savings? 
What is their relative importance? 

40. 2. How, if at all, would the following tend to affect 
the demand for savings, the supply of savings, and the rate of 
interest: (a) an increasing supply of money; (b) increasing 
extravagance in private life; (c) a world war; (d) equaliza- 
tion of money incomes? 

40. 3. "By loans a part of the burden of war-costs is 
shifted from the present to the future." Is this true of (a) 
the world as a whole? (b) a particular country? (c) particular 
classes within a country? 

40. 4. Discuss the effect of war loans upon the volume of 
savings available for use in production. 

40. 5. Are durable consumers' goods capital, — always? 
ever? Does the demand for them constitute a demand for 
savings? Does the repair and replacement of them? 

40. 6. Enumerate: (a) the factors which make the nom- 
inal rate of interest differ from the true rate; (b) the factors 
which make the true rate different at different times; (c) the 
factors which make the true rate different in different countries 
at the same time. 

40. 7. "I am willing to concede that interest ought to be 
paid to a man who saves out of a small income by self-denial, 
but I have no patience with the paying of interest to a capitalist 
whose accumulations have cost him no sacrifice." (T.) 

77 



y^ QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

Do you agree? Can a distinction between the two be 
practicably made? 

40. 8. What is to be said for and against (a) the prohibi- 
tion of the taking of interest? {b) legal limitations on the rate 
of interest? 



CHAPTER XLI 
OVERPRODUCTION AND OVERINVESTMENT 

41. 1. "Overproduction may mean various things." What 
things? 

41. 2. "In normal conditions the danger is not overpro- 
duction but underproduction." Explain. How would under- 
production be indicated? 

41. 3. Should "accumulation and investment go on by 
leaps and bounds," how would the following be affected: (a) 
purchases of plant and machinery ; (b) luxurious expenditure ; 
(c) prices of consumers' goods; (d) the return on capital? 

41. 4. "The economic forces work in precisely the same 
way to check the overaccumulation of capital as they do to 
check the overproduction of wheat, potatoes, or anything else." 
What forces are meant? 

41. 5. How does overinvestment in particular industries 
bring its own remedy? How does a tendency toward over- 
accumulation? 

41. 6. What is Rodbertus' theory of crises? 

41, 7. To what extent is saving and investment almost 
automatic? What are the resultant dangers? How are these 
to be avoided? 

41. 8. What are the characteristics of industries which 
are most liable to overproduction? 



79 



CHAPTER XLII 

RENT, AGRICULTURE, LAND TENURE 

42. 1. What does the term "land" include? 
42. 2. Which of the following statements, if any, should 
you accept? 

(a) "Rent is the specific product of land." 

(b) "Rent is producers' surplus with special reference to 
land." 

(c) "Rent is the price paid for the use of a durable good." 

(d) "Rent is the value of the use of natural resources." 
42. 3. What is the distinction between "commercial rental" 

and "economic rent"? 

Under what circumstances, if any, will the commercial 
rental exceed the economic rent? the economic rent exceed the 
commercial rental? 

42. 4. Com is produced on the hills of New Hampshire 
and the prairies of Iowa. What differences, if any, should you 
expect in the two places in (c) the price of corn of the same 
quality? (b) the cost of producing such corn? (c) the rents 
paid for the land employed in the cultivation of the corn? 

42. 5. What differences between different plots of land are 
significant in the determination of economic rent? 

42. 6. State the principle of diminishing returns. Does it 
apply to lands used for other purposes than agriculture? 

42. 7. Suppose all the land of a country to be arranged in 
order of increasing fertility in concentric circles about a market. 
Suppose the differences in fertility to be offset exactly by the 
cost of transportation to the market. Would there be rent? 
If so, under what conditions? If not, why not? 

8o 



THE DISTRIBUTION OF WEALTH 8l 

42. 8. Would there be economic rent (a) if there were no 
tendency toward diminishing returns? (b) if the government 
owned all the land? (c) if land were always utilized by the 
owners? (d) if the supply of better land were practically un- 
limited? 

42. 9. Explain "margin of cultivation." Distingush (a) 
the intensive and extensive margins; (b) the point of diminish- 
ing returns and the margin of cultivation. 

42. 10, "A farmer is under strong incentive to increase his 
crop of wheat so long as his average cost per bushel is less than 
the market price of wheat." Do you agree? 

42. 11. "The margin of cultivation for the British wheat 
market may be in northwest Canada or Australia or the Argen- 
tine." Explain, 

42. 12. How will the amount of labor and capital applied 
at the intensive margin, and the kind of land cultivated at the 
extensive margin, be affected by (a) increasing population? 
(b) improvements in transportation? (c) discovery of a cheap 
fertilizer? 

42. 13. Explain: "intensive cultivation"; "extensive cul- 
tivation"; "predatory cultivation." 

Is extensive cultivation necessarily predatory? Is predatory 
cultivation necessarily wasteful? 

42. 14. The average wheat crop per acre is larger in New 
Zealand than in England, and larger in England than in the 
United States. Does this indicate that agricultural methods in 
the United States are inferior? 

42. 15. "The opening of the Erie Canal affected both 
intensive and extensive agriculture in the United States." 
Explain, 

42. 16. What are the principal forms of land tenure? 
What are their comparative merits? 

42. 17. What considerations bear upon the proposal to 
confiscate for the benefit of the community (a) the economic 
rent of agricultural land? (b) future accretions of this rent? 



CHAPTER XLIII 
URBAN SITE RENT 

43. 1. What are the causes of differences in the advan- 
tages of different city sites for (a) retail trading? (b) whole- 
sale trading? (c) manufacturing? {d) residence purposes? 

43. 2. "Our prices are low because we do not have to pay 
high rent." "The prices of the commodities sold on the more 
expensive sites are not higher." Can you reconcile these two 
statements? If so, how? If not, which is correct, and why? 

43. 3. "The effect of high prices for land and high rents 
is apparent. Industries will be slow to locate in Pittsburgh 
if rents and prices of land are higher than in other cities. A 
higher rent or interest on higher-price of land bought for 
building, will be a constant added charge on cost of operation. 
Consequently industries will tend to shun a city where this 
higher cost is incurred." 

Do you think this consequence will ensue? 

43. 4. In the utilization of urban sites does tne tendency 
to diminishing returns appear? Does the intensive margin 
appear? Does the extensive margin? 

43. 5. To what extent is the return upon the following 
rent, to what extent interest: (a) "made land"; (6) residence 
sites greatly improved by a real estate development company; 
(c) a permanent drainage system on a farm; (d) a golf links? 

43. 6. How far is "ground rent" identical with economic 
rent? 

43, 7. An enterprising merchant takes a fifty-year lease 
at a moderate rental on an urban site in a district not largely 

82 



THE DISTRIBUTION OF WEALTH 83 

devoted to retailing, believing it can be made an important 
retail center. He builds a large store, advertises assiduously, 
and attracts a large and highly profitable custom. Other 
dealers are attracted to the district, and rents and land values 
rise greatly. 

Has the economic rent increased (a) on his site? (b) on 
neighboring sites? In each case is the increase in land values 
earned or unearned? If earned, by whom? 

43. 8. A city passes a building law restricting the height 
of buildings to the width of the street upon which they front. 
How, if at all, will this tend to affect urban site rent? 



CHAPTER XLIV 
RENT, concluded 

44. 1. What different elements of cost must be covered by 
the returns from mines? 

44. 2. How does the tendency toward diminishing returns 
appear in mining? 

44. 3. To what extent are mining royalties economic rent? 

44. 4. The annual rental of a piece of farm land is $250. 
Taxes on the piece amount to $75 yearly. If the current rate 
of interest on investments of the same security is 5 per cent, 
what is the value of the piece? 

How and why might the value be affected by the proximity 
of a rapidly growing city? 

44. 5. Does land have a normal value? 

44. 6. The rentals from a New York office building 
amount to $50,000 a year. The building is now worth 
$200,000. To provide for insurance, depreciation, taxes, and 
such fixed items, $10,000 is required annually. What is the 
value of the land if the current rate of interest upon invest- 
ments of equal security is 5 per cent? 4 per cent? 6 per cent? 

44. 7. How should you expect a permanent fall in the 
interest rate ultimately to affect (a) the value of an urban site? 
(6) the rentals of an office building on the site? (c) the value 
of the building? 

44. 8. What is meant by the "unearned increment"? Is 
such an increment to be found only in the case of land? Why 
may its appropriation by the state be urged more strongly in 
the case of urban land than in the case of agricultural land? 

44. 9. In the case of urban sites, what are the arguments 

84 



THE DISTRIBUTION OF WEALTH 85 

for and against state appropriation of (a) all economic rent? 
(b) all future increases of economic rent? (c) part of future 
increases of economic rent? 

44. 10. "Increment taxes levied on capital value tend to 
defeat themselves." Explain. What is the best mode of 
levying such taxes? 



CHAPTER XLV 
MONOPOLY GAINS 

45. 1. Wherein are land rents and monopoly gains alike? 
wherein different? 

45. 2. Make a classification of monopolies, giving illustra- 
tions of each variety. 

45. 3. What is a "public service industry"? For what 
reasons is monopoly in such industries virtually inevitable? 
^ 45. 4. The Welsbach burner was, through a patent, a 
source of large monopoly gains. Were these gains socially 
justifiable? 

Should you say the same of (a) enhanced profits received 
by a public service company as a result of the growth of the 
community? (6) abnormally large profits from a business as a 
result of goodwill built up by extensive advertising. 

45. 5. Indicate some of the considerations involved in 
determining the fair selling value of a public service property, 

45. 6. "Vested interests present questions of the same sort 
in the case of monopolies as in the case of land." What are 
these questions? 



86 



CHAPTER XLVI 
THE NATURE AND DEFINITION OF CAPITAL 

46. 1. "The income from concrete instruments of produc- 
tion may be regarded as 'rent' or as 'interest,' according to the 
point of view." Explain. 

46. 2. In what different ways may the amount of capital 
be measured? 

46. 3. "All concrete instruments of production have a 
derived value." Explain. 

46. 4. From what different viewpoints have the distinc- 
tions between interest, rent, and monopoly gains been dis- 
carded? 

46. 5. "The return to all fixed capital, if a short period 
is under consideration, partakes of the nature of economic 
rent." Discuss critically. 

46. 6. On what grounds does the retention of the distinc- 
tion between land and capital seem advisable? 



87 



CHAPTER XLVII 
DIFFERENCES OF WAGES. SOCIAL STRATIFICATION 

47. 1. Distinguish wages and wage rates. May two 
groups of workers have the same wage rates but receive 
different wages? 

47. 2. Enumerate the causes which give rise to "equalizing 
differences" in wages. 

47. 3. What is to be said for and against the adoption 
of the principle of "equal pay for equal work" as between men 
and women? 

47. 4. Define "real differences" of wages. What are the 
causes of such differences? Are they persistent? 

47. 5. Distinguish the two ways in which expense of 
training affects wages. 

47. 6. What are "non-competing groups"? How is the 
reward for labor affected by their existence? Which lines of 
separation seem to you most distinct? most persistent? 

47. 7. Which should you expect to be the more highly 
paid, and why: (a) a street car conductor or a motorman; 
(6) a surface car motorman or a subway motorman; (c) a day- 
school teacher or a boarding-school teacher; (d) a trained 
nurse or a stenographer; (e) a. steeple jack or a house painter; 
(/) a cotton factory operative or a department store clerk? 

47. 8. To what is social stratification due? How far do 
existing social strata reflect differences in inborn ability? 

47. 9. What is meant by mobility of labor? What forces 
promote, what forces restrict the mobility of labor? 

47. 10. How are wages in the lowest group affected by 

88 



THE DISTRIBUTION OF WEALTH 89 

(a) unrestricted immigration? (b) free public school education? 
(c) immobility of labor? 

47. 11. What differences of wages would persist if labor 
were perfectly mobile? Is perfect mobility of labor desirable? 

47. 12. Are the differences between men's wages and 
women's wages ''equalizing" or "real" ? Are these differences 
removable? socially objectionable? 

47. 13. Is the employment of women in gainful occupa- 
tions advantageous to society? 



CHAPTER XLVIII 
WAGES AND VALUE 

48. 1. Do "expenses of production" now measure "cost 
of production"? Why or why not? Would the situation be 
different if there were perfect mobility of labor? 

48. 2. "Labor of any kind has a derived utility." Explain. 

48. 3. What is meant by the marginal efficiency of a 
group of laborers? How is it related to the rates of wages 
received by the group? 

48. 4. How does immigration from Europe to the United 
States tend to affect (a) the marginal productivity of labor in 
the United States? (b) the productivity of the world's labor 
supply? 

48. 5. In what way, if at all, does the existence of "non- 
competing groups" within a country operate to make the coun- 
try's international trade different from what it would be if there 
were no such groups? 

48. 6. Under what circumstances will the expenses of pro- 
duction determine the value of the product? Under what 
circumstances will the value of the product determine the 
expenses of production? 

48. 7. "The exchanges between different countries are 
analogous to the exchanges between non-competing groups 
within a country." Explain. 



90 



CHAPTER XLIX 

BUSINESS PROFITS 

49. 1. To what extent, if at all, do the following receive 
business profits: a dentist; a popcorn vendor; a real estate 
speculator; a successful inventor; a salaried manager; a con- 
sulting engineer; a holder of a railroad bond; an idle owner of 
a share of stock? 

49. 2. A business firm is made up of three partners, A and 
B, active partners, and C, an inactive (or silent) partner. The 
firm has $150,000 capital contributed in equal shares by the 
three partners. Its articles of agreement provide that the net 
earnings shall be divided as follows: first, a dividend of 6 per 
cent on the capital; second, if net earnings permit, a salary of 
$4000 to each of the active partners; lastly, any remainder to 
be distributed as further dividend on the capital. The firm's 
net earnings in 1908 were $23,000. What were the ''business 
profits" of the firm? 

49. 3. Distinguish the various kinds of risks assumed by 
business men. Are business profits essentially a reward for 
the assumption of risk? 

What risks, if any, are taken by laborers? Do they get 
business profits? 

49. 4. To what extent do the following determine the 
success of business men: (a) chance; (6) education; (c) ex- 
ceptional native ability; {d) mechanical talent; (e) "capital 
and connection"? 

49. 5. What are the motives which impel business activ- 
ity? What qualities are requisite for success? 

91 



92 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

49. 6. How would the following be affected if capable 
business men were much more plentiful than they are: (a) the 
social income; (b) wages of laborers; (c) business profits; 
{d) interest; (e) social stratification? 

49. 7. Should you expect business profits to constitute an 
increasing or a decreasing proportion of the total social income? 



CJIAPTER L 

BUSINESS PROFITS, continued 

50. 1. Do business profits consist in whole or in part of 
interest? rent? wages? 

In what sense is the business man properly termed the 
"residual claimant" in the distribution of wealth? 

50. 2. In what respects are rent and business profits alike? 
In what respects different? 

If all men were equal in ability, and opportunities were the 
same for all, would there be business profits? 

50. 3. "A capable business man who happens to own an 
advantageous site gets two sorts of rent." Explain. 

What should you expect to be the result if the same form 
of taxation were applied to both? 

50. 4. Is the representative firm necessarily a new firm? 
an old firm? a large firm? a small firm? Is it the average firm? 
the marginal firm? 

Define "representative firm." 

50. 5. If business profits rise, how will the interest rate be 
affected? If the rate of interest rises, how will business profits 
be affected? 

50. 6. To what extent in actual business are business 
profits connected with (a) a large command of capital? {b) 
illegitimate business practices? 

50. 7. What determines whether business profits are legiti- 
mate or illegitimate? What forces are necessary to restrict 
business profits within legitimate limits? 

50. 8. What is "profiteering"? Is the "profiteer" always 
a monopolist? 

93 



CHAPTER LI 
GREAT FORTUNES 

51. 1. What should you assign as the fundamental causes 
of the growth of great fortunes in modern times? 

51. 2. From what source do great fortunes arise? What 
is the essential difference between an "earned" and an "un- 
earned" fortune? Would both persist under free competi- 
tion? 

51. 3. Upon what grounds are large fortunes to be justi- 
fied? Are we likely to have more or fewer of them in the 
future? 

51. 4. Trace the effects of the upbuilding of large enter- 
prise by reinvestment of accruing profits upon (a) the income 
of the owners of the business; (b) the social income; (c) 
the growth of large fortunes. 

51. 5. Which of our social institutions promote fortune- 
building? 

51. 6. What are the objectionable aspects of large for- 
tunes? Are there available remedies? 



94 



CHAPTER LII 
THE GENERAL LEVEL OF WAGES 

52. 1. Compare the effects upon wages of extensive 
saving and lavish expenditure. When lavish expenditures are 
suddenly curtailed and the savings invested, what laborers, if 
any, are injured? benefited? 

52. 2. Can saving be carried to excess? If not, why not? 
If so, what conditions would disclose the excess? 

52. 3. Are the laborers in the building trades of a city 
benefited by (a) a great conflagration in the city? (b) the 
regular occurrence of small fires? 

How, if at all, are the effects different for the laboring 
class as a whole? 

52. 4. " 'My lord,' said the shipbuilder to Lord Dun- 
donald, 'we live by repairing ships, as well as by building 
them, and the worm is our best friend. Rather than use 
your preparation [to protect the bottoms of ships of war], I 
would cover ships' bottoms with honey to attract worms.' " 

What have you to say of the shipbuilder's position? 

52. 5. What is the immediate effect, what the ultimate 
effect, of the introduction of labor-saving appliances (a) upon 
the laborers in the industry directly concerned? (b) upon 
laborers in other industries? 

52. 6. "The inevitable attitude of the hired workman is to 
favor arrangements that seem to make work and to oppose 
those that seem to lessen work." Why? Why should this 
attitude be thought "inevitable"? 

52. 7. What is meant by (a) "the specific product of 

95 



96 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

labor"? (b) "the marginal product of labor"? (c) "the dis- 
counted marginal product of labor"? 

52. 8. "Increased efficiency increases the supply of labor 
and thus tends to lower wages under a demand and supply 
doctrine." "Increased efficiency increases the marginal pro- 
ductivity of labor and thus causes wages to rise." Which is 
correct and why? (T.) 

52. 9. To what cause or causes should you ascribe the 
high level of real wages in the United States? 

52. 10. "With the increasing complexity of production 
interest tends to be a larger part, wages a smaller part, of the 
total income of society." Why? Does it follow that wage 
rates become lower and interest rates higher? 

52. 11. In what direction and by what processes should 
you expect general wages in the United States to be affected by 
(a) increasing willingness to save? (b) increasing ability 
among business men? (c) an extension of industrial educa- 
tion? (d) the adoption of a literacy test for immigrants? (e) 
increasing limitation of output by trade-unions? (/) adoption 
of equal suffrage? 

52. 12. "Economically it is for the interest of every class 
of producers to see the efficiency of other classes of producers 
increase." Why? (T.) 

52. 13. "If the demand for the commodity remains the 
same, the less A does the more there is for others to do. The 
demand for labor will be increased and wages will rise." Do 
you agree? How do you account for the holding of this theory 
by workmen? 

52. 14. "Free competition between labor and capital will 
result in just wages to labor." Do you agree? What are 
"just" wages? 

52. 15. Enumerate the most effective means by which 
the general level of wages might be raised. 



CHAPTER LIII 
POPULATION AND THE SUPPLY OF LABOR 

53. 1. Under what circumstances, if any, might the supply 
of labor increase, population remaining the same? 

53. 2. Is the supply of labor elastic, i.e., does it respond 
to increases and decreases in demand (c) immediately? (6) in 
the long run? 

Does an increase of wage rates ever cause (a) an increased 
willingness to work? (6) a decreased willingness to work? 

53. 3. What did Malthus mean by the "tendency" of 
population to outstrip subsistence? Does this tendency exist 
today in the United States? 

53. 4. What is meant by "preventive check"? "positive 
check"? "birth rate"? "death rate"? How, if at all, are 
these checks and rates connected? 

53. 5. Is the same standard of living necessarily main- 
tained by two men receiving equal wages? by two men expend- 
ing equal amounts? Would your answer differ if one man 
supports a family, and the other does not? 

Define "standard of living." 

53. 6. How, if at all, are standards of living affected by 
wages? wages by standards of living? 



97 



CHAPTER LIV 
POPULATION, continued 

54. 1. What is the connection between (c) the standard 
of living and birth rates? (6) birth rates and the supply of 
labor? (c) the labor supply and the marginal productivity of 
labor? {d) the marginal productivity of labor and wages? 

54. 2. "I cannot understand the stress laid by economists 
on the necessity of checking the growth of population. Every 
person born into the world brings with him not only a need 
for goods, but also the power to produce these goods." Com- 
ment. (T.) 

54. 3. What is "over-population"? "under-population"? 

54. 4. How is the general decline in the birth rate to be 
explained? the general decline in the death rate? Are the 
two equally signs of social progress? 

54. 5. 



Country 


Birth Rate 


Death Rate 


A 


35 
40 
18 
25 


25 


B 


35 


C 


19 


D 


30 







What inferences as to social conditions in the various coun- 
tries can you draw from the above statistics? Would your 
answer differ if you knew that many inhabitants from D had 
been emigrating to A? 

54. 6. Of recent years deaths in France have been as 
numerous as births. Is this socially undesirable? 

98 



CHAPTER LV 
INEQUALITY AND ITS CAUSES. INHERITANCE 

55. 1, On what different bases has the distribution of 
property and income been estimated? Can you suggest any 
not mentioned in the text? 

55. 2. "The poorest class is the most numerous." Does 
the evidence support this statement? 

55. 3. "The rich are becoming richer and the poor poorer." 
Is this true? 

55. 4. How far, if at all, are existing inequalities of wealth 
and income attributable (a) to inborn differences? (b) to 
social institutions? 

55, 5. Describe the various proposals for the limitation 
of the right of inheritance and the probable effect of each 
upon (a) the creation of capital; (b) the persistence of 
inequality. 

55. 6. Upon what grounds, if any, are the following to be 
condemned or justified: (a) the right of inheritance; (b) the 
institution of private property; (c) the leisure class? 

55. 7. What has been meant by "a natural right"? What 
is the foundation for individual rights? 

55. 8. What are "vested interests"? When, if at all, 
should they be respected? 

55. 9. If the competitive system is retained, is inequality 
likely to increase? to decrease? 



99 



BOOK VI 
PROBLEMS OF LABOR 

CHAPTER LVI 

THE WAGES SYSTEM. STRIKES AND THE RIGHT 
TO STRIKE 

56. 1. Characterize the "wages system." Is it indis- 
pensable? 

56. 2. What drawbacks does the wages system entail? 
What are the compensating benefits? 

56. 3. "Not wage-slavery, but the silent sustained exer- 
cise of preference explains the modem industrial order and 
the existing wages system." Explain, Do such preferences 
explain the origin of the wages system? its continuance? 

56. 4. What is a "strike"? Is there a "right" to strike? 
May we also speak of a "right" to work? a "right" to dis- 
charge? Whence come such "rights"? 

56. 5. "Take away the right to strike and you have invol- 
untary servitude — wage-slavery." Do you agree? 

56. 6. What policy do you support with reference to 
strikes in (a) "vital" industries? {b) industries managed by 
the government? (c) "public utilities"? 

56. 7. What are the essential conditions of "industrial 
democracy"? How far may it be expected to modify the 
wages system? Is it incompatible with labor unions? 

56. 8. "Industry is more democratic without the ballot 
than government can possibly be made even with the ballot." 
Is this true? 

56. 9. What limits the scope of employee participation in 
management? 

lOI 



CHAPTER LVII 
LABOR UNIONS 

57. 1. Why is the labor- union movement comparatively 
recent? Are the conditions which have fostered it likely to 
become less or more pronounced? 

57. 2. Are the interests of "labor" and "capital" funda- 
mentally opposed? To what extent are the interests of 
"labor" shared by all laborers? 

57. 3. In what respects is the single laborer at a disad- 
vantage in bargaining with an employer? What advantages 
in bargaining accrue to the laborer through collective action? 

57. 4. Under what conditions may it be said that there 
is "equality of bargaining power" between employer and 
employee? 

57. 5. Why do trade-unions flourish in some industries 
and not in others? Is their absence in a particular industry 
evidence that collective bargaining is undesirable in that 
industry? 

57, 6. "Collective bargaining is not an instrument of 
peace primarily. It is a step in the process of control. It is 
the entering wedge toward the abolition of the profits system." 
Do you agree? 

57. 7. Trade-unionists claim that collective bargaining 
benefits not only the workers — it benefits the employer also. 
Is this true? 

57. 8. To what extent and by what means can trade- 
unions influence (a) the wages paid in a given occupation? 
(b) the general level of wages? 

57. 9. Give the arguments (a) from the viewpoint of the 

102 



PROBLEMS OF LABOR IO3 

trade-unionist, (b) from the viewpoint of the economist, for 
and against 

(1) the closed shop; 

(2) the open shop; 

(3) the closed union; 

(4) the open union; 

(5) labor-saving appliances; 

(6) limitation of output; 

(7) piece-work; 

(8) a standard rate of wages; 

(9) semi-military discipline by employers; 

(10) the "scab"; 

(11) the strike; 

(12) the lockout; 

(13) the boycott; 

(14) the black-list. 

57. 10. What situation with respect to the closed union 
and closed shop is socially most desirable? 

57. 11. Is the employer justified in insisting that in labor 
matters he will deal with no one not in his employ? 

57. 12. Should you account productive laborers: (c) a 
trade-union organizer; (b) a "walking delegate"; (c) a strike 
agitator; (d) a strike breaker? 

57. 13. Is destruction of property ever justifiable in a 
labor dispute? Is intimidation? 

57. 14. "In industrial disputes neither party thinks of the 
public." Precisely what constitutes the "public" and what are 
its interests? 



CHAPTER LVIII 
LABOR LEGISLATION AND LABOR HOURS 

58. 1. Why should women and children seek factory em- 
ployment? What consequences flow from such employment, 
for good? for evil? 

58. 2. Enumerate the principal subjects of labor legis- 
lation. 

58. 3. Is labor legislation needed in industries where 
trade-unions are already strong? Is there anything that may 
be accomplished by labor legislation that could not be accom- 
plished by trade-unions? 

58. 4. Why limit by statute the length of the working 
day (a) for women? (b) for children? (c) for men? 

58. 5. Would a universal eight-hour day result in lower 
general wages? If not, why not? If so, are there offsetting 
gains? 

58. 6. Is a man justified in protesting against a limitation 
of the working day on the ground that he has a right to work 
as long as he wishes? 

58. 7. What conditions give rise to a demand for mini- 
mum wage legislation? What results can be obtained by such 
legislation? 

58. 8. Explain wherein the problems would be different 
in fixing minimum wages for common unskilled labor, for 
various grades of skilled labor, and for women. 

58. 9. What is to be said for and against a law requiring 
that everyone who works is to receive at least a "living wage"? 

58. 10. Should the individual worker or the family be 

104 



PROBLEMS OF LABOR IO5 

taken as the unit in determining a "living wage"? If the 
latter, how large a family? 

58. 11. "A living wage is a first charge on industry." If 
you were an arbitrator, should you accept this as a basic 
principle and rule out other considerations as irrelevant? 

58. 12. What forces have been instrumental in bringing 
about labor legislation? 

58. 13. Why has the United States been backward in labor 
legislation? Wherein are other countries in advance of the 
United States in this respect? 

58. 14. Is labor legislation evidence that unrestricted com- 
petition cannot be relied on to secure the highest social well- 
being? 

Is there any distinction between restricting competition 
and elevating the plane of competition? 



CHAPTER LIX 
SOME AGENCIES FOR INDUSTRIAL PEACE 

59. 1. What different arrangements for profit sharing 
have been employed? 

59. 2. What are the aims of profit sharing? To what 
extent and for what reasons has it accomplished or failed to 
accomplish these aims? What is the prospect of its extensive 
adoption? 

59. 3. What conditions are favorable, what conditions 
adverse, to the success of profit sharing? 

59. 4. What are the principal types of "welfare arrange- 
ments" in industrial establishments? Why have they been 
introduced? What do they promise? 

59. 5. Explain the "sliding scale." Under what circum- 
stances may it be applied? What are its elements of strength 
and weakness? 

59. 6. In what various forms may arbitration be applied 
in industrial disputes? What are the advantages and dis- 
advantages of each? 

59. 7. Distinguish arbitration and conciliation. Under 
what conditions is each peculiarly applicable? 

59. 8. "Compulsory arbitration . . . may be the enter- 
ing wedge to socialism." Under what circumstances, if at all, 
and why? 

59. 9. Is compulsory arbitration in public service indus- 
tries desirable? Is it socialistic? 

59. 10. What advantages to employers, employees, and 
society at large are offered by {a) profit sharing? (b) "gain 
sharing"? (c) "welfare arrangements"? (d) the sliding scale? 
(e) voluntary arbitration? (/) compulsory arbitration? 

What is the attitude of trade-unions toward each? 

io6 



CHAPTER LX 
WORKMEN'S INSURANCE. POOR LAWS 

60. 1. What is the nature of insurance? Are all risks 
insurable? Consider the following definition of insurance: 
"A device for distributing the burden of losses arising under 
certain contingencies, over a period of time and over a number 
of those subject to risk of loss, in such a way that the burden 
of loss may be more easily borne." 

To what extent does insurance tend to prevent the occur- 
rence of the event insured against? May it ever increase the 
probability of such occurrence? 

60. 2. What are the main causes of irregularity in earn- 
ings? What is their relative importance? 

60. 3. If workmen universally insisted on higher rates of 
pay in hazardous employments, would there be occasion for 
compulsory insurance against accidents? 

60. 4. What are the chief methods of compensating work- 
men for industrial accidents? 

Upon whom does the burden of compensation ultimately 
fall? Upon whom should it fall? Are insurance expenses 
an element in cost of production? 

60. 5. Is insurance against sickness as important as 
insurance against accidents? as feasible? What has been the 
experience with it? 

60. 6. Who are the "unemployed"? What are the causes 
of unemployment? How far is it true that unemployment 
"brings its own remedy"? 

60. 7. "Unemployment, though it tends to correct itself, 
is a continuing phenomenon." Explain. 

107 



I08 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

What methods of provision for it are in use? What diffi- 
culties do they encounter? 

60. 8. What are the different forms of provision for old 
age? What are the advantages and disadvantages of each? 

60. 9. Explain: "indoor relief"; "outdoor relief." Com- 
pare their advantages. 

What are the essentials of a satisfactory system of poor 
relief? 

60. 10. With what force can it be argued that the follow- 
ing are deterrents to thrift: (a) industrial accident compensa- 
tion; (b) compulsory sickness insurance; (c) unemployment 
insurance; (d) old-age pensions; (e) poor relief? 



CHAPTER LXI 
COOPERATION 

61. 1. What is the essence of cooperation? In what lines 
of economic activity has it been tried? 

61. 2. "Cooperation is only a method of competing more 
effectively." Discuss critically. 

61. 3. What form of cooperation is most characteristic of 
England? of Germany? In which country has there been less 
development and why? 

61. 4. What has been the success of, what is the economic 
significance of, cooperation (a) in retail trading by the well- 
to-do? (6) in retail trading by workingmen? (c) in agricultural 
operations? (d) in banking? 

61. 5. What are the causes of the success of distributive 
cooperation in England? What are the reasons for its failure 
to develop in the United States? 

61. 6. What are the different forms of credit cooperation? 
Under what conditions does the need for it arise? What con- 
ditions are essential to its success? 

61. 7. What is the record of "cooperation in production"? 
What peculiar obstacles does it encounter? What of its future? 



109 



BOOK VII 
PROBLEMS OF ECONOMIC ORGANIZATION 

CHAPTER LXII 
RAILWAYS 

62. 1. In order to be to the public interest, must a railroad 
secure profits (a) from its passenger traffic? (b) from its freight 
traffic? (c) from its mail traffic? (d) from the beginning of its 
operation? 

62. 2. What are the important economic characteristics 
of railways? 

62, 3. In what ways does the tendency to increasing 
returns present itself in railway operation? 

62. 4. How does the necessity of maintaining a large plant 
in railroading affect (a) the regularity of profits? (b) the 
tendency toward combination? (c) costs of transportation with 
varying volume of traffic? 

62. 5. In what ways do railroad operations illustrate pro- 
duction at joint cost? What important consequences flow 
from this characteristic of railways? Is the principle of joint 
cost of the same significance in all stages of railway develop- 
ment? 

62. 6. In fixing railroad rates, to what extent should the 
following be considered: (a) weight of commodity; (b) dis- 
tance transported; (c) the maintenance of industries already 
established in a particular section; (d) separable expense of 
transportation; (e) value of commodity; (/) increase in value 
due to "place utility"; (g) dividends on railroad stock? 



112 QUESTIONS ON THE PRINCIPLES OF ECONOMICS 

62, 7. Why are railroad rates between two points fre- 
quently different according to the direction in which the com- 
modities move? 

62. 8. Should you expect railroad rates on copper ore to 
be higher or lower per ton than on coal? 

Why does an express company charge no more for carrying 
twenty-five pounds of books than for carrying the same dis- 
tance at the owner's risk twenty-five pounds of table silver? 

62. 9. Rates on California lemons are made so low that 
they can compete with lemons from Sicily. Lumber from 
Oregon competes in Boston with lumber from Maine. Does 
the practice of quoting such rates benefit (a) the fruit-grower 
and the lumberman? (b) the consumer? (c) the railroad? (O.) 

62. 10. What is meant by "charging what the traffic will 
bear"? To what extent, and on what grounds, is it justifiable? 

62. 11. To which point in each of the following cases 
should you expect the railroad rate from New York City to be 
lower: (a) San Francisco or Salt Lake City; (b) Chicago or a 
small town twenty miles east; (c) Chicago or New Orleans; 
(d) Buffalo, N. Y., or Burlington, Vt.? 

62. 12. What is the standard of reasonableness (a) for the 
general level of railway rates? (b) for rates on particular com- 
modities? 

62. 13. Does an effective public prohibition of discrimina- 
tion in rates and service between large and small shippers seem 
economically justifiable? 

62. 14. Explain: "rebates"; "railway pools." Why have 
they been prohibited? Under what circumstances, if any, 
should either be permitted? 



CHAPTER LXIII 
RAILWAY PROBLEMS, continued 

63, 1. "Railways have been the most important agents 
in increasing the disparities of wealth in modern times." In 
what ways? 

63. 2. When may profits from railroading be said to be 
unearned? Is state appropriation of such unearned profits 
desirable? feasible? 

63. 3, If a railroad company regularly earns 5 per cent 
on all its outstanding stock and bonds, can it be said to be 
overcapitalized? What constitutes overcapitalization? Should 
an attempt be made to prevent it by law? 

63. 4. What relation has overcapitalization to {a) the 
profits of the company concerned? (6) the rates charged by 
the company concerned? (c) concentration of railroad owner- 
ship? 

63. 5. Has private ownership of the railroads justified 
itself in the United States? Is its continuance imperative? 

63. 6, To what extent is railway business conducted under 
monopoly conditions? Is competition tending to prevail less 
or more widely? 

63. 7. "To charge what the traffic will bear under the 
principle of joint cost is for the public interest; to charge 
what it will bear under the principle of monopoly is against 
the public interest." Explain. 

63. 8. What is the case for and against government owner- 
ship of railroads in the United States, with respect to {a) rates? 
(6) discrimination? (c) finance? 

"3 



CHAPTER LXIV 
PUBLIC OWNERSHIP AND PUBLIC CONTROL 

64. 1. Enumerate and classify the principal public service 
industries of the present day. 

64. 2. Are the following public service industries: (a) sup- 
plying milk within a city; (b) the maintenance of a municipal 
sewerage system; (c) jitney bus service; (d) the maintenance 
of emergency hospitals; (e) coal mining? 

64. 3. What are the essential characteristics of public 
service industries? 

64. 4. What different relationships as to ownership, man- 
agement, and regulation may exist between the government 
and public service industries? 

64. 5. What are the forces making for monopoly in the 
case of (fl) the railroad? (b) the telephone? (c) the post office? 

64. 6. For what reasons has private management been a 
necessary stage in the development of public service indus- 
tries? In what industries is this stage past? 

64. 7. On what terms should franchises be granted public 
service companies? 

64. 8. If the public buys a "public utility" from private 
owners, what considerations should determine the terms of the 
purchase? 

64. 9. What are the earmarks of an industry adapted for 
public management, (a) according to Jevons? (b) according to 
Professor Taussig? 

What social and political conditions are conducive to suc- 
cessful public management of industries possessing these ear- 
marks? 

114 



PROBLEMS OF ECONOMIC ORGANIZATION II5 

64. 10. On what grounds, if any, may public ownership 
be called "socialistic"? "conservative"? 

64. 11. What two types of commission have appeared in 
the American states to deal with public service industries? 
What is each capable of accomplishing? 

64. 12. Precisely what is meant by "publicity" as a means 
of regulating public service companies? In whose interests 
may pubhcity be required? 

64. 13. Upon what points must public regulation focus? 

64. 14. What evils may result from unwise regulation of 
public service companies? 

64. 15. To what extent has regulation of railroads been 
carried by the United States? What are the prospects of 
public ownership and public management? 



CHAPTER LXV 
COMBINATIONS AND TRUSTS 

65. 1. Describe briefly the various forms of industrial 
combination. Which now prevail, and why? 

65. 2. What has been the status of agreements in restraint 
of trade (a) under our common law? (b) under the law of Con- 
tinental Europe? 

What important alterations have been made in the United 
States by statute? 

65. 3. What factors make for the success of an industrial 
combination? Would success prove it to be economically 
superior? socially desirable? 

65. 4. What forces tend to bring industrial monopoly? 
What forces tend to re-establish competitive conditions where 
monopoly has for a time prevailed? 

65. 5. What is "unfair competition"? "ruinous competi- 
tion"? "cutthroat competition"? "potential competition"? 
By what measures, if at all, may each be diminished? 

65. 6, If an industrial combination, selling its product at 
competitive prices, secures large profits through various econ- 
omies, is the combination socially objectionable? 

65. 7. What influences may be expected to temper the 
policies of industrial combinations in the United States? 

65, 8. What important advantages for the community 
are claimed for industrial combination? To what extent have 
these been realized? 

65. 9. "The special question presented in this regard by 
the trust movement seems to be whether large-scale manage- 

ii6 



PROBLEMS OF ECONOMIC ORGANIZATION II7 

ment adds something to the gains from large-scale production 
in the narrower sense. Here, too, it would appear at first sight 
that the matter may be allowed to settle itself. Let them 
fight it out and let that form of organization survive which 
does the work most cheaply." 

Explain: (a) the distinction between large-scale manage- 
ment and large-scale production; (b) what grounds there are 
for saying that they should be allowed to fight it out, what 
grounds for saying that they should not; (c) what policies 
have been pursued in the United States on this subject; {d) 
what legislation has recently been enacted. 

65. 10. What are the earmarks of effective industrial 
monopoly? 

65. 11. Should you expect (i) the tendency toward com- 
bination, (2) the tendency toward monopoly, to be strength- 
ened, or weakened by large increases (a) in the savings of the 
community? (^) in general business ability? (c) in concentra- 
tion of control of banking interests? 

65. 12. How far may it be said that economic problems 
have outgrown the capacity of governments for dealing with 
them? 



CHAPTER LXVI 

SOCIALISM 

66. 1. What changes, if any, does socialism contemplate 
in the following: 

(a) the organization of production; 

(b) the medium of exchange ; 

(c) sources of individual income; 

(d) the institution of private property; 

(e) the leisure class; 

(/) individual freedom of opportunity; 

(g) political organization; 

(h) the organization of the family; 

(i) education; 

(;■) prevailing religion? 

66. 2. What is "guild socialism"? Wherein does its pro- 
gram differ from "orthodox" socialist programs? from pro- 
ducers' cooperation? 

66. 3. "Today all over the land masons, hod-carriers, 
carpenters, and so on are building palaces which other people 
are to live in. When socialism triumphs all this will be 
changed. The worker, no longer robbed of the fruits of his 
labor, will himself occupy the palaces he builds, wear the 
broadcloth he makes, and eat the choice viands he produces." 

Criticize. (T.) 

66. 4. Would there be saving in a socialist state? Would 
there be capital formation? interest? rent? 

66. 5. Should you regard it as wise for a socialist state to 
charge identical prices for two articles produced with the same 
amount and quality of labor, and the same amount and quality 

ii8 



PROBLEMS OF ECONOMIC ORGANIZATION 1 19 

of land, if one required an elaborate, expensive plant while the 
other required only a simple, inexpensive plant? if the produc- 
tive processes differed greatly in length? 

66. 6. What business risks, if any, would be eliminated 
under socialism? What, if any, would remain? 

66. 7. In what sense, if any, can it be said that the 
following are socialistic: (a) public ownership and manage- 
ment of gas works; (b) public ownership and management of 
railroads; (c) compulsory arbitration between employers and 
workmen; (</) minimum-wage legislation; (e) unemployment 
insurance; (/) a billion-dollar trust; (g) the Single Tax? 

66. 8. Should you apply the term "socialistic" to pro- 
posals which, though urged by socialists, tend to prevent the 
coming of socialism? to proposals which tend toward social- 
ism, though they are not directly urged by socialists? 

66, 9. Upon what several principles might the wages of 
different sorts of workers be fixed under socialism? Which 
would be the most practicable? 

66. 10. In a socialist community should you expect to 
find equalizing differences in wages? real differences? What 
principles of justice would be applicable in either case? 



CHAPTER LXVII 

SOCIALISM, continued 

67. 1. Enumerate the important difficulties which social- 
ism would encounter. Number them in what seems to you to 
be the order of their importance. 

67. 2. Would the pressure of population be greater or less 
under socialism? What bearing would this have upon the 
policy and permanence of the socialist state? 

67. 3. What grounds are there for saying that under a 
socialistic regime the efficiency of the rank and file of workers 
would be greater? less? 

67. 4. What is the outlook for effective leadership under 
sociahsm? 

67. 5. Socialism is sometimes described as "against human 
nature." To what aspects of human nature does this criticism 
refer? Is the point well taken? 

67. 6, Should the goal of economic progress be primarily 
a better distribution or a larger production? May either be 
safely neglected? Which is emphasized by socialism? 

Does a larger production tend to promote better distribu- 
tion? Does a better distribution tend to promote larger 
production? 

67. 7. To what extent has the Marxian theory of indus- 
trial evolution been fulfilled? 

67. 8. What are the prospects for the early adoption of 
socialism? for its ultimate adoption? 



I20 



BOOK VIII 
TAXATION 

CHAPTER LXVIII 
PRINCIPLES UNDERLYING TAXATION 

68. 1, Classify the different sorts of payments to govern- 
ments. Of which variety is each of the following: {a) charges 
for marriage licenses: {b) water rates; (c) fares paid on a 
government railroad; {d) duties imposed upon estates passing 
by bequest; (e) assessments for sidewalks levied upon owners 
of abutting lots? 

Define "tax." 

68. 2. Define proportional, progressive, degressive, and 
regressive taxation, and illustrate each by hypothetical income 
tax rates. 

Is an import duty of 2^ per pound on sugar a proportional 
tax? 

68. 3. What are the different theories regarding the best 
mode of apportioning taxes? 

To which sort of taxation (proportional, progressive, or 
regressive) does each of these theories lead? 

68. 4. Distinguish "funded incomes" and "unfunded 
incomes." What reasons can be urged for and against heavier 
taxation of funded incomes? 

68. 5. Should taxation be used as an instrument for {a) 
appropriating illegitimate incomes? {b) restricting undesirable 
business practices? (c) absorbing monopoly profits? (c?) reduc- 
ing inequalities of wealth? 

For what other objects may taxation be employed? 



CHAPTER LXIX 
INCOME AND INHERITANCE TAXES 

69. 1. Can one who opposes progressive taxation con- 
sistently support a progressive income tax? 

69. 2. Is it advisable to exempt the poorer classes (a) 
from all taxes (b) from all direct taxes? (c) from taxes on 
incomes? 

69. 3. What are the two common methods of levying in- 
come taxes? Wherein is each advantageous? disadvantageous? 

69. 4. "The principle of stoppage at the source is not 
consistent with progression." Explain. By what device is 
progression in income taxes secured despite this fact? 

69. 5. Compare inheritance taxes and income taxes with 
respect to (a) ease of collection, (b) advisability of pro- 
gressive rates, (c) equality of burden upon persons in like 
circumstances, (d) fitness for frequent readjustment of rates. 

69. 6. What is the history and present status of income 
taxes in the United States? 

69. 7. What are the principal features of the Federal 
income tax as developed in 1913-1919? 



122 



CHAPTER LXX 

TAXES ON LAND AND BUILDINGS 

70. 1. Trace the evolution of taxes upon real property. 
Why have they come to their present importance in financial 
legislation? 

70. 2. What conditions are essential to the shifting of a 
tax? 

70. 3. Who bears the burden of a tax (a) on land apart 
from the improvements upon it? (b) on buildings per se? 

What underlying difference between land and buildings is 
responsible for the difference of incidence? How may the 
shifting take place? 

70. 4. What is meant by "quasi-rent"? 
70. 5. What would be the incidence of a land tax if it 
were levied at so much per acre without regard to value? 

70. 6. Under what conditions is a tax on rented buildings 
borne by (a) the tenant? (b) the owner? (c) neither? 

70. 7. How far is it true that a tax upon land is a "bur- 
denless tax"? Can the same be said of a tax upon real estate? 
70. 8. In what respects do different results follow accord- 
ing as real estate taxes are (a) imposed on owner or occupier? 
(b) assessed on rental or capital value? 

70. 9. Are working men taxed by real estate taxes affect- 
ing their dwellings? 

What difference does it make whether they or their land- 
lords are assessed for such taxes? 

70. 10. To what extent have taxes on real property been 
relegated to local governing bodies? What are the reasons for 
this policy? Is it wise? 

123 



CHAPTER LXXI 
TAXES ON COMMODITIES 

71. 1. Distinguish "direct" and "indirect" taxes. 

71. 2. What are the advantages of indirect taxes? Are 
there offsetting disadvantages? 

71. 3. To what extent and by what process is a tax shifted 
to consumers when levied upon a commodity produced (a) at 
constant cost? (b) at decreasing cost? (c) at increasing cost? 
(d) by a monopoly? 

71. 4. "A tax on any commodity raises its price. . . . 
But a tax on all commodities cannot raise all prices." Why, 
or why not? 

71. 5. Distinguish excise taxes and customs duties. Is 
their operation proportional, progressive, or regressive? 

What are their relative merits for purposes of revenue? 
Should a large or a small list of articles be selected for either 
form of taxation. 

71. 6. "Import duties operate as taxes on the foreign 
producer, not on the domestic consumer." Under what con- 
ditions, if any, would the statement be true? 

71. 7. What are fiscal monopolies? Cite examples. Are 
they desirable sources of public revenue? 



124 



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